Unlike the Naira, Zambia’s currency appreciates to 21 Kwacha/USD

Confidence UbaniFebruary 19, 20242 Mins read773

Zambia's Kwacha

Zambia’s kwacha has experienced an impressive winning streak, marking its longest rally in nearly a year.

The kwacha strengthened by 17.7% against the dollar this month and positioned itself as one of the world’s best-performing currencies.

Having climbed for six consecutive days, the kwacha has reasonably appreciated; the United States Dollar sold between 21 and 22 Kwacha on Monday. This marked an improvement in the 27 Kwacha/USD exchange rate last week.

This aggressive gain is attributed to recent measures by the Bank of Zambia, including a substantial interest-rate hike and directives for local banks to increase reserves.

Association President Paul Kalumba, while speaking to ZNBC News, also highlighted that the offloading of dollars by key entities like Mopani and Konkola Copper Mines contributed to the success.

Previously, the kwacha experienced a 75-day decline, dropping 21% against the dollar between Oct. 16 and Feb. 5. Due to Zambia’s reliance on imports, ranging from fuel to fertilizer and foodstuffs, the weakness of its currency was a matter of critical concern.

This vulnerability drove up inflation, which surged to 13.2% in January. The kwacha’s value reportedly dropped because there was less copper production, the primary way the southern African nation earned foreign exchange. Also, there was a disagreement among creditors, which stopped the country from restructuring its debt. The debt restructuring issue arose when Zambia emerged as the first pandemic-era sovereign defaulter in the continent.

In November 2023, Zambia’s central bank announced plans to raise the statutory reserve ratio for deposits in local and foreign currencies by three percentage points to 14.5%. The objective was to alleviate pressure on the foreign exchange market and control inflation.

In February 2024, the reserve ratio was further increased to 26%, while interest rates were hiked to the highest value they have reached in almost seven years. The unexpected moves by the Bank of Zambia have placed the currency in its winning position.

As Zambia’s kwacha continues its bullish trend against the U.S. dollar, analysts predict it will continue to appreciate. However, concerns arose as Mr. Kalumba urged the Central Bank to implement urgent measures to curb the kwacha’s steep appreciation. A delicate balance is undoubtedly critical.

He stated that business people importing goods are experiencing losses due to the sudden rise of the kwacha against the U.S. dollar.

West Africa Weekly noted how the kwacha’s recent performance starkly contrasts the naira’s volatility. As earlier reported, the naira reached an all-time low of ₦1600/dollar, plunging citizens into untold suffering.

The Nigerian naira continues to depreciate despite the plethora of policies dished out by the federal government and the Central Bank of Nigeria (CBN). The worsening inflation and deteriorating economy require more than a trial-and-error approach.

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