• The recent bond auction by Bank of Zambia indicates that only about 37% was realized from the targeted K2.6 billion.
• This is a true reflection of how investors are now attracted to the Federal Bonds that are offering higher yields.
• The monetary policy effect for the BoZ intervention may not be enough for this case.

Zambia’s currency, the Kwacha has continued to depreciate against major convertible currencies such as the United States dollar, despite Bank of Zambia intervening by tightening the monetary policy rate and raising the Statutory Reserve Ratio from 9 to 11.5 percent.
Demand for foreign currency especially the US dollar has continued to rise even amid the Central Bank’s efforts to supply the interbank with Foreign
In Tuesday’s trading session, the local unit opened at K19.62 Ngwee and K20.02 on the bid and offer respectively, after closing the market at K19.55 Ngwee and K19.94 Ngwee on Monday, February 27, 2023.
Recently, the Central Bank attributed the continued depreciation of the Kwacha to weak foreign exchange supply amidst strong demand by market players for various purposes, including critical imports of fuel, medicines and agricultural inputs.
And an Economist says exchange rate volatility is due to the tightening of the Monetary Policy by the Reserve Bank of America as well as the Zambia’s prolonged debt restructuring process, among other factors.
Emmanuel Zulu told Money FM News that the monetary policy effect for Bank of Zambia’s intervention such as raising the Statutory Reserve Ratio to 11.5% and Monetary Policy Rate to 9.25% may not be enough to change the Kwacha’s performance.
Mr. Zulu however noted that this move has to a large degree helped form some resilience without which the Foreign Exchange (FX) rate would have been worse than it is today.
“The dollar trading for almost K20 today is explained by among other factors the tightening of the Monetary Policy by the Federal Reserve Bank and the protraction of Zambia’s debt restructuring process. The recent bond auction by Bank of Zambia indicates that only about 37% was realized from the targeted K2.6 billion. This is a true reflection of how investors are now attracted to the Federal Bonds that are offering higher yields in a much more stable and predictable economic environment than those economies engulfed by uncertainty.”
“This is the reason we are seeing investment shift from African economies as investors want to have guaranteed returns for their investment and not face the case of the Eurobond in Zambia,” Mr. Zulu noted.
He further noted that this has resulted in the high demand for the US Dollar, which is hurting currencies for small economies like Zambia as investors are dumping the local unit for the dollar.
“The interventions by the Central Bank will have further positive influence on FX Market and inflation as they pass the policy impact lag period,” he said.
Mr. Zulu stressed the need for the country to start looking beyond the debt restructuring deal as the only way out and see how best to utilize available resources to increase national output and Forex earnings.
“If we get our debt relief, with time, it should actually be a plus to our efforts. Let us get KCM and Mopani mine running as we take advantage of increasing demand of copper on the market. Kasenseli Gold mine should quickly be operationalized. We also need to further incentivize the manufacturing sector and fully exploit the Free Trade Agreements we have signed,” Mr. Zulu added.
He also challenged government to be transparent and give the much needed information around the debt restructuring process so as to gain investor confidence.