Kwacha Strengthens

The Kwacha on 18th June 2019 rallied to K12.95 for a unit of dollar propelled by support from taxes and payroll conversions. 

Most corporates are selling dollars to meet their taxation obligations in local currency with a significant portion also looking to fund month-end payrolls.

This is the strongest the copper currency has traded in almost 2 months after it slid to a 42 month low weighed by souring sentiment given falling reserves and rising public debt. The Bank of Zambia (BOZ) on 22 May tightened monetary policy 50 basis points (bps) to 10.25% for the first time since Dec 2015 signaling the genesis of a rate hike cycle given the fiscal posture of the sovereign. Zambia was in May downgraded by Moody’s rating agency to Caa2 with negative outlook.

The rally was however capped by dollar demand from the petroleum sector which was nonetheless outweighed by Kwacha appetite.

“Kwacha funding in the offshore market has been tight and this has supported the bulls observed to some extent,” an unnamed commercial bank trader said in the capital Lusaka. The optimistic outlook is expected to persist in the medium term, he said.