Friday, March 29, 2024

BoZ pumps US$ 170 million into the market to halt further Kwacha slide

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Bank of Zambia Governor  Michael Gondwe
Bank of Zambia Governor Michael Gondwe

The Bank of Zambia has to date pumped in US$ 178 million into the foreign exchange market to prevent the further depreciation of the Kwacha.

Bank of Zambia Governor Michael Gondwe told a media briefing that the central bank had to intervene in order to support the relatively low supply of foreign exchange and moderate volatility in the market.

Dr Gondwe explained that the likely impact of these relative tightening measures is to assist in reducing liquidity levels and to some extent dampen exchange rate pressures.
He said since the beginning of 2014, the Kwacha has depreciated against the US dollar by 7.8 percent to trade at an average of K 5.9406 per US dollar from an average of K 5.5126 per US dollar at the close of December 2013.

“Zambia’s economic growth and increased integration with the world economy has implied that international economic development have had a significant impact on the exchange rate. More recently for instance, the decision by the US Federal Reserve Board to reduce the amount of US dollar liquidity supplied through its quantitative easing program has broadly affected several emerging markets including Zambia’s,” Dr Gondwe said.

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Gross international Reserves have decreased to US$ 2.673 billion at the close of February 2014 from US$ 2.751 billion at end January

 

[/pullquote]He added, “the decline in the average price of copper to 7,010 per tonne at close of February from 7, 360 per tonne in December 2013 has had an adverse impact on the kwacha due to the high correlation between copper prices and market sentiments of the Kwacha dollar exchange rate.”

“Recent developments in the foreign exchange markets have raised concerns not only to the Bank of Zambia but also to the public at large. In some cases this has led to speculative behavior and panic buying of the foreign currency and thereby inducing more pressure on the exchange rate. Developments in the foreign exchange market reflect responses to the country’s growth needs and changes in the international environment,” Dr Gondwe said.

“Above all, this is expected to steer inflation developments towards the end of the year target of 6.5 percent and Government’s growth and employment objectives,” he said.

Dr Gondwe said a strong depreciation or a strong appreciation are not desirable outcomes for sustained growth and stability of any economy.

“In 2007, the Kwacha appreciated by 7.2 percent against the US dollar. This hurt the exporters of non-traditional goods especially the floricultural and horticultural products as they lost competitiveness. On the other hand, steep depreciation makes the imports of capital goods expensive and in inflationary,’ Dr Gondwe explained.

He added, “The Bank of Zambia is still committed to ensuring that the exchange rate remains relatively stable and competitive and will therefore endeavor to take all the necessary measures aimed at minimizing exchange rate volatility while at the same time exploiting opportunities that will arise to accumulate reserves.”

Dr Gondwe said successful management of exchange rate volatility will need implementation of prudent fiscal and monetary policies within a flexible exchange rate regime.
On the statutory instrument 55 introduced in July 2013, Dr Gondwe said the Central Bank is working with the Zambia Revenue Authority to develop an electronic monitoring system which will enhance information exchange on the flows and assist ZRA to follow up on tax compliance.
He said the system is currently being tested and will be rolled out once the tests are completed by end of June 2014.
“Since the implementation of S1 55, the BoZ has observed that corporates are increasingly becoming more transparent in their disclosures and reporting cross border transactions.”

The Central Bank Governor also revealed that Gross international Reserves have decreased to US$ 2.673 billion at the close of February 2014 from US$ 2.751 billion at end January.

He added, “The decline in reserves was mainly due to foreign exchange sakes aimed at supporting the market and payments related to oil procurement.”
The Kwacha has fallen sharply over the last six months against major international currencies but posted some significant movements in both selling and buying yesterday opening at 5.945-5.965 and closing lower at 5.915-5.935.
Standard Chartered Bank has maintained its outlook for the Kwacha for levels in the region of 5.900-6.000 for the remainder of the week.

21 COMMENTS

  1. Hopefully it will stay stable! I think BOZ should have waited till around June, because markets will be unstable should Russia sanction Europe in retaliation. Dont tell me African markets wont be affected because they will.

    • This is artificial and should not excite us…We want to see and feel that you are managing the economy!!!!!!!!

    • its not sustainable -BOZ has no control on the tapering by the federal reserve that is causing currencies in emerging economies to tank-as painful as it is just let the kwacha bottom out

    • People we have a govt in place without sound economic agenda. A small economy like Zambia cannot have a simple quantitative easing strategy to same a falling currency. The reason is simple the economy is too small to support this strategy on a long term. All this govt is doing now is allowing people to change kwacha to dollars for save heavens. Please do the right things, improve on governance and sort out the food production issue as the storm is just getting started.

    • Incredible move indeed! Where was this money hiding? Is it true or it just spin to halt people from US$ panic buying? I strongly think the later is more plausible. The government has intervened superficially to avoid embarrassment and scaring off foreign investors.

      I know for sure like many others that the PF depleted all foreign reserves left by MMD. So where has this money coming from at the eleventh hour? Would I be right to assume that it is borrowed money?If the government is doing “DONCHI KUBEBA” on this issue, when the truth hits the markets there will be turning back for the Kwacha.

      One of the best ways to address forex flight from Zambia is to improve the PF’s image on governance matters to instil confidence in the market that dissenting individuals are fairly treated…

    • The price of Zambia’s forex earner has dropped to $6,376.25 by yesterday according to Bloomberg and the governor is talking about $7,000. This is our quandary, that our revenue still mostly comes from exports of raw copper. And global prices for those commodities are falling.But compounding these pressures from afar is a problem of Africa’s own making: big budget deficits… sharp drops against the U.S. dollar are making imported goods more expensive. his may force shopkeepers to raise prices, slowing business. We need more sustainable solutions than this!

    • the worst is still to come watch this space…copper is heading for US$5500.

      The small reserves will be exhausted to try and save the kwacha. 2016 will be interesting..

    • One way of managing the economy is pumping in a few reserves of your own. Lets see if this works. The US central bank does it regularly

  2. This is a bad idea ..what happens if they slide continues. I don’t think the slide is due to luck of dollars in the system. It is because people have lost confidence in the system and are taking their money out and that is what we need to address.

    • The BoZ governor and the Finance minister could do with a chat with Nigel Lawson over his failed strategy of pumping in billions of Pound Sterling on the markets in a failed attempt to keep the pound above an agreed lower limit. It ended up in tears and spending billions. The clowns we have for leaders dont seem to learn lessons from the mistakes of others. Just google “Black Wednesday – Nigel Lawson.” Could it be the fact that they seem to be content in the knowledge that a vast majority of Zambians are excluded from actively participating in determining the country’s economic and political governance?

    • From the Governor :

      Since the beginning of 2014, the exchange rate of the Kwacha against most of its major trade partner currencies has exhibited a depreciation trend. As at 10th March 2014, the Kwacha had depreciated against the US dollar by 7.8% to trade at an average of K5.9406 per US Dollar from an average of K5.5126 per US dollar at the close of December 2013. Further the local currency lost against the British pound and Euro by 8.5% and 8.7%, respectively.

      More recently, a slowdown in portfolio investment inflows, which have hitherto played an important role in financing our current account deficits, has contributed to the pressures on the exchange rate.

  3. More excuses for poor financial management. This is what we get for voting in a useless Government that cares more about by-elections and hiding our Constitution than about the Zambian people!

    For sure Chikwanda has never heard of George Soros. If he had he would not be falling into the same hole twice!

  4. The action taken by BOZ will only induce temporal relief. It is a pain killer but not remedy at all. What happens when these dollars run out on the market? Is BOZ going to pump in some more? Well eventually BOZ will run out of reserves if it continues on this path. We need to cure the disease permanently and not to depend on pain killers type-of solution. The USD178m will be snatched by OMCs at once and we will be back to square 1. Watch this space.

    • If it runs out, can’t they just print more? Am sure they have enough ink at government printers. Welcome to Zed my lovely land.

  5. Zambia has as much control as a child who has just been born. Again, global integration, dependency on copper, and politics can all explain the slide in the price. But even an increase as Dr. Gondwe noted can do harm. Currency stabilization is about an exchange rate that increases export ( thats why China exports alot because they make their money cheap), but also not so cheap that it becomes expensive for us to import. As it is right Bank of Zambia is doing the right thing- COPPER WILL NEVER GO OUT OF FASHION it is established chemically as a formidable conductor of electricty. All we need is to start controling quanties we float on the market to control the price- AS OPEC does.

  6. Mr. Nice, it is so true. Michael X Michael do not have any clue how to run an economy. Michael was making easy money from PTA Bank-cuts from loans and lines of credits given to money launderers of the like of Mahtani. Multinationals and Indians from Kamwala will siphon of cheaper dollars and Kwacha will be back to 6+ and we the natives will be the sufferers. Michael squares (M to the power 2) are thieves. Zambia is doomed.

  7. Wanzelu you right PF really needs to improve their image, bad image affects the economy, hiding the constitution makes it even worse, as it confirms oppression is
    coming our way.

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