THE local foreign exchange market has continued experiencing low supply of dollars, further pushing the kwacha on a depreciating trend. A few weeks ago, the kwacha touched the K9.20 level before losing ground on thin dollar supply. The depreciation of the kwacha has seen prices of most imported goods skyrocketing.
“Without any supply in the market, the kwacha has continued to endure losses, breaking K9.800. In Friday morning’s trading session, the kwacha gained some steam against the dollar, appreciating to K9.6500, the lowest level recorded for the day,” the FNB daily market update has stated.
“However, these levels did not hold as market dynamics shifted, moving the local unit in the opposite direction. Towards the close of day, momentum had completely shifted with the rate looking set to go higher.”
It has forecast continued kwacha loses as dollar supply remains tight.
“We are of the view that the kwacha will continue to lose ground this week and may break K9.8500, levels last seen in March 2018,” FNB stated.
It stated the the dollar’s appreciation was due to general increase in interest rates in the United States.
“The kwacha continued to suffer heavy losses as demand for the dollar peaked in Wednesday’s morning trading with the rate breaking K9.750. Across the board, the US dollar has appreciated due to the general increase in US interest rates – as risk return for riskier assets losing some appeal,” FNB stated.
“As the rate went higher, an element of panic buying ensued, exacerbating the rate of depreciation. Local market dynamics of unmet dollar demand together with limited supply could lead to upward pressure on the exchange rate in the next few sessions. As the timing mismatch between supply and demand closes out, we expect upward pressure to ease. Largely due to the lagged effect of the fuel price hike on transportation and production costs, April inflation increased to 7.4 per cent year on year. Sustained high inflation will threaten the Central Bank’s targeted range of six per cent to eight per cent, which is likely to put upward pressure on interest rates.”
On the bond market, activity remains subdued.
“Spreads have remained quite wide due to constrained liquidity. The interbank rate has increased from 9.60 per cent to 9.84 per cent,” stated FNB.