THE kwacha’s sharp depreciation against major convertible currencies is likely to continue due to Zambia’s weak economic productivity, compounded by diminishing dollar supply, says financial market analyst Maambo Hamaundu.
According to market players, the kwacha sharply depreciated to hit an historic K18 per dollar psychological barrier for the first time in Zambia’s history by close of business, Tuesday.
And by close of business, Thursday, the local currency had posted further losses to slide to an average K18.50 and K18.80 per dollar for bid and offer, respectively, according to the First National Bank.
“USD/ZMW reached these historic new levels mainly in view of the absence of US dollar suppliers on the local market, causing what seems to be panic buying of dollars,” FNB Zambia noted in a daily Treasury market update released earlier this week, as dollar supply has all but diminished.
In an interview, Hamaundu said that the kwacha was set to continue depreciating given the inherent weakness still persisting in the local economy where dollar demand had continued to outweigh supply of the greenback, weighing huge pressure on the embattled local currency.
“I don’t see it dropping below K17.50 (per dollar). I think it could get worse. If you recall, last December, the rate headed towards this similar (level), except there was intervention by the Bank of Zambia (BoZ) using Monetary Policy where they raised the Statutory Reserve Ratio (SRR) so that helped support the kwacha. If they (BoZ) had not intervened, the rate would have reached where we are now that much earlier,” Hamaundu said.
“COVID-19 is not helping us in any way; there’s a general slowdown in economic activities; it’s a bad period.”
He, however, called for concerted efforts by all major economic players to utilize the present quarantine period and initiate solutions to arrest the free-falling kwacha.
“Without sounding pessimistic, but I think if, as a country, if we seriously sit down during this period of self-quarantine, think through, we might come up with solutions, we might begin to see things from a different perspective and advise on how we should move as a country going forward. The economy is in a bad shape. Now, it’s a question of: ‘how bad is bad?’ ” Hamaundu added.