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HomeNewsZambia: Depreciation of Zambian Kwacha attributed to high demand

Zambia: Depreciation of Zambian Kwacha attributed to high demand

The Zambian central bank has attributed the weakening of the Kwacha against major currencies, during the first quarter of 2014, to high demand due to higher growths in imports compared to exports,

It also blamed the trend on investor sentiments associated with the tapering of quantitative easing in the United States and falling copper prices on the global markets.

The Bank of Zambia (BOZ), however, said the depreciation was moderated by steady supply of foreign exchange by corporates, in particular, the mining companies and foreign financial firms towards the end of the quarter and its net sales to the market.

According to the BOZ Governor’s Monetary Policy Statement, issued here Friday, during of first quarter of this year, the Kwacha depreciated by 11.4 percent against the British pound to close the quarter at K10.1514 to a pound.

The Kwacha was also weaker by 10.8 percent against the Euro to close at K8.5085 to a Euro and lost against the South Africa Rand by 10.7 percent to close the quarter at K0.5827 to a Rand.

On a year to date basis, the Kwacha reportedly depreciated by 10.7 percent against the dollar and closed the quarter at K6.1031 to a US dollar.

On Friday, the Kwacha was traded at K6.4739 against the dollar.

BOZ also noted that central banks in emerging markets and some developed markets tightened monetary policy in order to moderate the effects of capital outflows, following the US Federal Reserve’s decision to reduce the quantity of monthly bond purchases. These measures helped stem risk aversion and weakened demand for the US dollar.

“The US dollar thus depreciated by 2.0%, 0.6 percent and 0.2 percent against the yen, pound and Euro to end the quarter at yen103.21/US$, US$1.6664/pound and US$1.3771/Euro, respectively. The US dollar only strengthened by 0.3 percent against the rand to close the quarter at ZAR10.5325/US$,” the bank stated.

Preliminary data show that Zambia recorded an overall balance of payments deficit of US$260.7 million during the first quarter of 2014 compared with a surplus of US$28.7 million registered during the fourth quarter of 2013.

This was explained by high deficits recorded in both the current and capital and financial accounts.

The central bank said the current account recorded a deficit of US$118.8 million compared with a surplus of US$30.2 million the previous quarter. This is said to have been largely driven by a rise in income on equity and interest payments, the slowdown in services receipts and the decline in inflows in form of current transfers which were not fully compensated by the rise in balance on goods (merchandise trade) surplus.

Zambia’s economic growth projected at over 7 percent will be driven by agriculture, manufacturing, construction and mining, says the bank.

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