• In the first week of February the Kwacha appreciated by around 6.8 percent
• Last week it depreciated by 1.5 percent to around K17. 74 ngwee per US dollar.
• Offshore flows that were supporting the Kwacha the previous week have started dispersing.
The Zambian Kwacha has started weakening again after weeks of posting positive gains against major convertible currencies such as the United States dollar.
The local unit stands at the bank rate of K18.02 ngwee as of today from K17.97 ngwee to one US dollar while one British pound is now trading at K23.51 ngwee.
This is despite the bank of Zambia injecting about 25 million US dollars into the market in the third week of February to cushion the pressures on the Kwacha.
According to an Economist, the Kwacha’s weak performance is due to the disappearing of offshore flows from the interbank market.
Gerald Soko told Money FM News in an interview that last week, the currency lost value by 1.5 percent compared to the appreciation rate of 6.8 percent recorded in the first week of February, 2022.
Mr. Soko noted that offshore flows that were supporting the Kwacha the previous week started dispersing because they were coming on the back of the bond auction held on 18th February 2022.
“For last week we saw the Kwacha changing posts, obviously in the first week of February we saw it appreciating by around 6.8 percent but last week it depreciated by 1.5 percent to around K17. 74 ngwee per US dollar on the interbank market.”
“Two things were key for the weak performance of the Kwacha, first of all we saw that offshore flows that were supporting the Kwacha the preceding week started dispersing because the offshore flows obviously were coming on the back of the bond auction that we had on 18th February 2022. But with that behind, we saw those flows disappearing,” Mr. Soko explained.
He however said the dollar was getting stronger as its index was up by about 6 percent, supported by the heightened risk in the global economy as a result of the geopolitical tension between Russia and Ukraine.
“At the same time the dollar was stronger, the dollar index itself was up by about point 5 to 6 percent benefiting from the heightened risk in the global economy due to the geopolitical risk associated with Russia’s invasion of Ukraine. Given those two factors, the Bank of Zambia was forced to continue intervening in the FX market, we saw them injecting about 25 million US dollars to support commercial banks demand appetite in the market,” he stated.
And Mr. Soko said this week’s Kwacha landscape will remain weak because demand for the US dollar has started coming back, putting the local unit under pressure.
“For the outlook, the landscape for the Kwacha remains weak, demand has started coming back its building at commercial banks and therefore with what I have said in terms of what we saw last week, disappearing flows on the interbank market, the Kwacha is going to be under pressure, but of course, as was the case last week, the depreciation pace is going to be moderate as compared to how quickly it came down in the third week of February, 2022,” he added.
Some Commercial banks have today 2nd March, 2022 quoted the Kwacha at K17.67 ngwee and K18.02 ngwee after closing yesterday’s trading session at K17.62 ngwee and K17.95 ngwee on the bid and offer respectively.
