Bank of Zambia Governor Dr Denny Kalyalya has attributed the recent sharp depreciation of the Kwacha to the slowdown in the Chinese economy, the second largest economy after the US.
Dr Kalyalya said the Kwacha has come under immense pressure due to slow growth in China and emanating from global economic and financial market developments.
In a statement, Dr Kalyalya said commodity prices, including copper have dropped with the Zambian economy impacted adversely through the decline in the price of copper, which has fallen to around US$4,900 per tonne from above US$6,500 per tonne in 2014.
He said these developments apart from underscoring the long overdue need for the diversification of the Zambian economy to reduce dependence on copper, they also provide an opportunity for the country to take practical measures to respond to the challenges of diversification.
Dr Kalyalya said difficult as the situation is, it is an ideal time to actualise this structural transformation.
“The movements in the exchange rate are sending clear signals that our economy needs an expanded export base and a reduction in unnecessary imports. We all need to engage in expenditure-reducing and expenditure-switching activities going forward,” Dr Kalyalya said.
He said, “The global situation remains highly fluid. Under these circumstances, the Bank of Zambia deems the current monetary policy stance appropriate and will continue monitoring the developments closely and take other measures as the situation warrants and in line with its mandate.”
Dr Kalyalya said Zambia remains vulnerable to developments in the global economy adding that the balance of payments position has deteriorated reflecting a widening current account deficit.
He added that both traditional and non-traditional exports have declined significantly this year while imports have declined at a slower pace.
“As a result, the Kwacha has been on a depreciating trend. In addition, global investors have been anticipating that the US central bank would begin raising interest rates before the end of the year for the first time since 2006. As a result, emerging markets have experienced systematic net outflows of capital, creating pressure on their currencies to depreciate.”