• Lack of FX liquidity in the market is the reason why the Kwacha has continued to depreciate
• Foreign exchange market has seen tight liquidity in the last two years.
• The key issue is around the production of exportable products.
An Economist says demand for United States dollars is usually high during the fourth quarter of the year as businesses import consumables for the festive period, resulting in Kwacha losses.
Speaking in an interview with Money FM News, Gerald Soko said importation of agriculture inputs also happens around this time, hence lack of adequate foreign exchange (Forex) liquidity has continued to put pressure on the Kwacha.
Mr. Soko noted that the foreign exchange market has seen tight liquidity in the last two years, which has been negatively affecting performance of the local currency.
“Pretty much the lack of FX liquidity in the market is the reason why the Kwacha has continued to depreciate. When we get to the fourth quarter of the year, we tend to see enhanced demand for foreign currency because these are the times where businesses import the consumables through to the festive period.”
“Importation of Agriculture inputs actually happens around this time as well so we have demand enhancing in the fourth quarter but also not tied to the fourth quarter but in the last two years, the market has seen tight liquidity so that has been a challenge in the performance of the Kwacha,” Mr. Soko noted.
He stressed the need for the country to enhance production of exportable products especially in the mining sector which accounts for about 70% of Forex earnings, in a bid to stabilize the Kwacha.
“The key issue is around the production of exportable goods, we need supply in the market and for that to happen, we need the export sector to be up and well-handled. The government is trying to ensure that it helps especially with the big piece being the mining sector which accounts for around 70% of our export receipts.”
“So we need to see the mining sector rebound, we get the FX flows and that should be able to sustainably work to the advantage of the Kwacha, he added.
The local currency closed the Forex market on Wednesday trading at K22.37 and K22. 82on the bid and is currently trading at K22.47 and K22.92 on the bid and offer respectively.