STANBIC Bank predicts that the Kwacha will generally continue trading on a sound footing against the United States dollar, supported by positive macroeconomic indicators.
This is premised on positive macroeconomic fundamentals such as low inflation which is in single digit, reduced monetary policy rate (MPR) and statutory reserve ratio (SRR) both at 12.5 percent.
Stanbic Bank head of global markets Victor Chileshe cited the reduction in MPR and SRR, which will trigger a further drop in interest rates and stable liquidity in the money market, as factors that will cushion the Kwacha.
Currently, the Kwacha is trading in the range of K9.2- K9.3 against the greenback.
In an interview on Monday, Mr Chileshe said with the central bank taking necessary measures of ensuring low inflation at 6.7 percent, this has a positive bearing on the exchange rate.
“I do not see any sharp depreciation [in the Kwacha] and we might not see it this half of the year nor in the third quarter. We project the Kwacha to continue trading between K9.0 and K9.5 – much better than last year,” he said.
Mr Chileshe said economic activities have improved with projections of continued optimism in the economy.
“Over and above, we have seen a slash in rates on the monetary policy side, the cost of deposits, which had escalated last year, is beginning to wash out, with new deposits being contracted at a lower rate and the benefits are being passed on to the public. There will also be improved credit being extended,” he said.
On possibilities of the Kwacha weakening, Mr Chileshe allayed fears as the anticipated International Monetary Fund bail-out will cushion any possible shocks.
“Liquidity has been unlocked…The more credit we extend, we see a lot more imports. For example, someone would want to buy a car or, say, farming equipment – all these will result in the import bill going up.
“This in itself will kind of increase demand for the greenback and put pressure on the Kwacha, which is more driven on import demand as opposed to dwindling exports but the reserves will help,” he said.