6 April 2012

Zambia: 'Check Kwacha Fall'

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American Dollar

THE Zambia Association of Manufacturers (ZAM) has said there is an urgent need for the Bank of Zambia (BoZ) to put measures to check the current depreciation of the Kwacha.

ZAM chief executive officer Roseta Mwape said the central bank should manage the exchange rate to make the local currency more competitive.

She said a policy direction was needed with regard to managing the exchange rate which has been trading between K5,200 and K5,300.

Ms Mwape said in an interview that the introduction of the policy rate alone was not enough to guarantee stability in the market.

The Government should instead manage the exchange rate instead of leaving it to the market forces.

"The Bank of Zambia should manage the exchange rate rather than leaving it to the market forces.

"We are not saying they should control the exchange rate but manage it to levels between K4,200 and K4,800, not leaving it to trade between K5,300 and K5,400," Ms Mwape said.

She said low value of the Kwacha as compared to other convertible currencies was affecting the competitiveness of local products.

Ms Mwape explained that the depreciation of the Kwacha would affect the competitiveness of locally-manufactured goods as most of the manufacturers' inputs were imported.

She said the depreciation of the local currency was affecting planning, thereby creating uncertainty in the market.

"First and foremost, the weakening of the Kwacha will create uncertainty in terms of planning because manufacturing companies cannot plan ahead.

"Most of their inputs are imported. Even if one has to say that they are gaining from exports but the bottom line is that the inputs are imported, making the products more competitive," Ms Mwape said.

The Kwacha, however, extended its gains against the dollar after being being off to a bullish start, boosted by a spate of interbank dollar selling in early morning trade.

The Zanaco Treasury Newsletter said from a close of K5,270/5,290 on Tuesday, the Kwacha rallied to reach K5,255/5,275 soon after the market opened as traders offloaded the greenback on the interbank market.

Demand for the dollar in the local market halted further gains with the local currency trading flat thereafter to close K15 up on a closing basis.

In the near term, the Kwacha is expected to remain firm against the United States dollar and should trade within 5,200 and 5,300 boundaries with trading activity also expected to be subdued ahead of the Easter holidays.

The market experienced a further drop in liquidity levels, touching K407.3 billion from the previous day's K578.6 billion whilst the weighted average overnight lending rate stood at 7.25 per cent from 7.09 per cent.

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