WITH fears grappling the market on the downfall of the Kwacha against major currencies, the Bank of Zambia (BoZ) has moved in to explain the reasons behind the depreciation of the local currency.
The central bank says increased demand for imports of capital goods has contributed to the loss of value of the Kwacha against major currencies.
This is as a result of consistent economic growth the country has recorded over the years which has led to a steady increase of imports particularly capital goods critical for sustaining such growth.
“Although exports have continued to show impressive growth, demand for imports has relatively been stronger, thereby contributing to the exchange rate depreciation,” said the central bank in a statement.
The Kwacha is currently trading at about K6 against the United States Dollar while the Pound and the Euro are trading at K9.9 and K7, respectively.
Apart from the demand for import, the central bank noted that Zambia’s increased integration with the world economy has had an impact on the performance of the local currency.
“It is important to note that US Federal Reserve Broad’s decision to reduce the amount of US dollar liquidity supplied through its quantitative easing programme has broadly affected several emerging markets including Zambia,” the statement added.
The Federal Reserve’s course of action has led to fears of slower growth of major economies particularly China.
This has resulted into the price of copper, Zambia’s major export earner, subdued thereby undermining investor optimism.
The Bank stated that the impact had also resulted into a slowdown in portfolio investment inflows, which have hitherto played an important role in financing the country’s current account deficits.
The central bank has responded to panic in the market by tightening monetary policy to stay on course with the attainment of the inflation target of 6.5 per cent.
“The Bank wishes to dispel the notion espoused on some media platform such as Reuter’s network that it does not intent to intervene in the markets.
“On the contrary, the Bank of Zambia, as always, stands ready to take actions that are appropriate at maintaining foreign exchange stability without compromising the external competitiveness of Zambian economy,” it stated.
Last week President Micheal Sata said the recent depreciation of the Kwacha is due to a combination of domestic and international market developments.
Mr Sata assured that the Government was closely monitoring the developments in the foreign exchange market.
The President said his administration had tightened monetary policy consistent with the attainment of the inflation target of 6.5 per cent for 2014.
Imwe ba Koswe …. Fix the issue period !
Stop your cheap talk and offer solutions. Fishing for reasons why the kwacha is weak is not doing Zambia any good, you guys seem not to have any understanding of economics, rubbish .
This is as a result of consistent economic growth the country has recorded over the years which has led to a steady increase of imports particularly capital goods……
Which years are you referring to? Is it the last two years of PF, are you sure? The real picture is coming due to the loss of confidence by the investors in the economic policies of this govt. It is hardly a month ago when Minister of Finance was saying the govt will do nothing about this situation and now BoZ says the reverse. These are issues which are affecting investor confidence. Recall investors are not like the people you lied to about the 90days theory; classic one right?
We expect these guys with Msc’s and Phd’s in economics, monetary policies, econometrics chaku chakuti etc to be employed and to run the Central Bank professionally and offer solutions. You don’t just employ your ill qualified small time branch teller with a IOB certificate to run our fragile economy. Nangu ni u chibwi no plan! There should limits to install and deploy family forests. No honour among Bemba thieves – every sector of the economy if available for plunder ,…Sangwapo
Instead of using economics you are busy giving as your Satanomics which has failed.
Economic illiterates busy spewing usual garbage after a sound explanation from BOZ. Mukafwa nechikonko ba mwankole.
That kwacha has been climbing slowly since you took power, why not offer your plans to fix situation as regards to Zambia not throwing blame on other nations, our economy was projected to grow as predicted way before you took power. You had an easy task but now you making it harder, this explanation is very vague, you were just told about our ballooned debt but you chose to leave that out .
Worrying situation. The programmes priortised do not bring or improve the economy. It would be nice to see a change in direction.
You r just useless ba BOZ, boza lyonse.
Its painful to b led by u guys.
These PF kolwes are simply incompetent and in the wrong place- Sata’s semi-iliterate relatives are running down the Central Bank ! …..these guys are paid to provide solutions not explanations. Anyfool can do that.
you pipo do not act on ear piece,u r not in zambia and u know less about the state of the economy.zambia was liberalized by second government mean meaning more imports than exports.the current government is having this problem because it wants to register all export has zambian product to stop the current export of register in the investors country.this will increase zambian GDP and further reduced the inflation rate.
help that is y u r a zambian… thanks
Basics of Satanomics . . .rule no.1 donchi kubeba – fwala insova!
I honestly doubt there is anyone at Finance or BOZ with a clue on how to cure this run away Kwacha depreciation. It’s a typical problem inherent is a tribal empire with little intellectual pool to choose from.
This is the most vague of explanations ever.
Basically they are saying, “we are clueless.” Yes?
Apple Inc. IBM, do not deposit their earnings in Cayman islands, Mauritius, Switzerland or other tax-free havens.
Trucks cross the Chirundu border laden with tonnes of copper, yet the after-sales monies do not cross the border back into Zambian accounts. Zambian authorities therefore qualify to be the most dull in the world. This is because no other country has such porous exchange rules!!! Right now our copper money is being enjoyed by Swiss, Caymanese, Mauritian children.
Just compare photos of Santiago & Lusaka and you’ll see what I mean. Chilean Govt makes sure money from copper sales comes back to Chile.
KCM, FQM, Lumwana should deposit a fair share of their earnings in Zambian banks. Then the dollar will be under control.
Totally agree. Even some of the local banks choose to use tax free havens for international e-wire transfers to avoid taxation (which is very high in Zambia). A bank like FBZ uses bank clearing houses in Mauritus and avoids the Zambian Banks. Its no wonder there Forex is running low and increasing demand. Maybe implementation of SI 55 should be revisited and reviewed
I think with the new Statutory Instrument that is already happening but the main reason is the capital outflow due to political uncertainity. Those countries you talk about have sound economic policies and democratic principles. The minute the right to voice your opinions i.e demonstrate, free press is limited you will find capital will flow out.
BOZ and Ministry of Finance ..what we want is to see the economy and rate fixed period. we are not interested in explanations after explanations. So what if you explain today and other explanation tomorrow and the day after etc. Just sort it out
You pour in USD 178m last week nothing happens and then you start telling us this nonsense?Repeal SI 55 you goons and see what happens.Free the Banking sector you fools?
The statement is so self contradictory!!
“The central bank says increased demand for imports of capital goods has contributed to the loss of value of the Kwacha against major currencies.
This is as a result of consistent economic growth the country has recorded over the years which has led to a steady increase of imports particularly capital goods critical for sustaining such growth.”
“The US Federal Reserve’s course of action has led to fears of slower growth of major economies particularly China.
This has resulted into the price of copper, Zambia’s major export earner, subdued thereby undermining investor optimism.”
So if investor optimism is undermined, why would they want to spend more money to import capital goods??
You can fool some people some of the time but…
…brilliant reasons….perfect…..so, should we regard this as a statutory standard reason for why ZKW will be trading K8 to a $ by November and K10 to a $ by March 2015….??
In old currency, was printing of K100, 000 note going to have any effect on the economy..??…yes …ofcourse negative effect. Re-look at the rebased K100 note. I’m sure there must be a good number of fake K100 notes in circulation by now….
Please think outside the box ….widen the scope of war zone to fight the dominant foreign currency………
“The President said his administration had tightened monetary policy consistent with the attainment of the inflation target of 6.5 per cent for 2014.”
How you have tightened monetary policy? By increasing local borrowing to 13 Billion? By moping up all Kwacha liquidity? By eliminating borrowing by SME?
Be serious and stop running in circles.
Admit that Government fiscal discipline is non-existent, budgetary deficit is ever-expanding and there is no policy to bring expenditure under control.
Otherwise, how can you justify increase in interest by more than 30% on the first bond issue? That is “barometer” of confidence (or lack of it) by the international market.
As to local market, just try to compare purchasing power of 100,000 Kwacha in 2012 and 1,000 Kwacha of to day.
There was a perception that the pulling out of Zambia’s mining sector by Anglo-American in the late 1990s was because of the rigging of elections leading to the late Mazoka losing unfairly. Would it be right to say the way the PF government is treating the opposition and CSOs is eroding confidence in investors resulting in high demand for a more secure currency the dollar, which is subsequently externalised? Further, it could also mean foreign creditors could be demanding faster payment for fear of instability and/or nationalisation of assets – due to the PF government moving to the left and continuously provoking Zambians by ill-treatment of the opposition? Fair political competition can bring about positive results.
we all know the real answer dont beat about the bush sata needs to go and his government because we arw going to beb worse than Zimbabwe
A strong currency bar for countries with inexhaustible natural endownment like oil (saudi arabia, kuwait, iran etc) rests on economic confidence investors and nationals hold their government. And democracy is the guarantee of this confidence.
BOZ can pour even $2 billion dollars. The rate might fall to even K3/US$ but only for a while to allow people to take positions in fcy. The reason is simple; there is no financial and economic confidence. Cure this and you will have a stable currency.
Start by releasing the constitution and guarantee fundamental human rights. Everytime the police utter things contrary to the law, there is an immediate impact on confidence and the Kwacha loses strength.
This could be one reason. Capital flight arises because a government is not instilling confidence into the economy
@Phiri. You are correct. An excerpt from the BOZ Governor’s statement……..
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.
Note: MORE RECENTLY, ………….. why is this happening but for lack of confdence?
REVISIT THE SI-55. ITS A TOTAL FAILURE !!
Capital goods have been in demand ever since Chiluba ended nationalisation in 1991 so this can’t be the reason. What’s our monetary policy not doing?
PF are hard nuts to crack. They will listen to no advice from whatever source.
In the little brains of most bloggers on this thread, PF is responsible for the American decision to mop the excess dollar and falling of copper prices. Grow up chaps.
Oh wise chabwera, that also explains the why we are not doing too well against the pound and euro? As for the copper prices falling, don’t you think if the PF had clear policy to increase the value of our copper and diversify the economy, we would be in a better position? I think we have been crying about reducing our dependency on copper for a while. To be honest the PF doesnt inspire any confidence when it comes to the economy.
The Zambian economy is still a ‘one trick horse’. Dependent on copper. As far as I am concerned, all we need to do or needed to have done all these years was to manufacture our own goods, from our own abundant local resources and export the surplus. I mean real manufactured import substitution goods – not just chillies and flowers.
The situation will be even more dire when our ‘one trick horse’ becomes lame due to the arthritis condition it has started to exhibit on the world performance stage.
I commend you for appointment as Minister of Commerce, Trade and Industry or Minister of Finance. For you have cleary articulated the conundrum this economy finds itself in and it wont be long before it goes on its death bed if those at the helm do not assimilate prudent advise as you have offered.
They say insanity is doing the same thing and expecting different results. In the Civics class of the mid 70s they used to teach us then that copper was a wasting asset. Fourty years later, this nation still relies on copper without substantial investment in import substitution manufacturing industries and yet expects to prosper. Incredible or is it madness?1
No matter the type of insults we use, the fact remains that the demand for the Dollar to import things like the mushrooming second hand cars that almost every government worker has, has outstripped the available Dollar on the market. The second is the issue of foreign owned chain stores who are getting almost every available Kwacha on the market, deposit that in their “holding” accounts in local commercial banks waiting to be transferred to their foreign bank accounts a week or few weeks later and lastly, is the booming construction industry that is requiring that we both pay for some goods needed in this industry and pay foreign companies involved n things like road construction. There is very little that the govt can do here unless if we want the govt to re-introduce for controls.
Com on BoZ,don’t use micro sector solutions for da isue hand,we nid a more realistic and reasoning handling of da problem.we kno u hav failed jst admit that u nid help from learned who undastands the EcOnOmIcS!atah clueless officials.
Zambian layman economics…. :'(
I THINK THE PROBLEM WITH THE GOVERNMENT IS THE APPOINTING OF UNQUALIFIED PERSONAL TO RUN CERTAIN INSTITUTIONS IF WE LOOK AT THE MWANAWASA REGIME THE DOLLAR WAS ONCE SELLING AT K3.6 NOW THE QUESTION IS WERE DID WE GO WRONG?AND WE SHOULDN’T PUT THE BLAME ON THESE OTHER COUNTRIES THEY ARE DOING WHATEVER THEY ARE DOING TO INSURE THAT THEIR CURRENCY GAINS VALUE WHAT OF OUR LEADERS AND WOULD YOU EXPECT SOMEONE WHO DID NOT DO ECONOMICS OR BANKING AND FINANCE RUN THE MINISTRY OF FINANCE?I THINK THE BEST WAY OF ADDRESSING THESE ISSUES IS BY REDUCING THE RATE OF IMPORTING GOODS AND REDUCING THE DEPENDANCE ON COPPER AND ALSO FREEZING THE INTERNATIONAL TRADE.