Kwacha in free fall

THE kwacha has this week began a free fall to trade at K10.80 against the United States dollar, hitting a level last seen two years ago.

The local currency on Monday opened trading at K10.60, but closed the day on a weak footing to touch K10.80.

Atlas Mara was yesterday quoting the local currency at K10.81 and K11.03 for buying send selling respectively.

Market experts say relief for the troubled kwacha may not come immediately, as demand for the dollar increases.

“The kwacha’s performance against the greenback in the third-quarter of the year has been lacklustre. The local unit’s depreciation hit 10.600 – a level last seen in the third-quarter of 2016. Unrelenting demand for the dollar has been and continues to be the supreme force,” FNB Zambia stated on Monday in its daily market update.

“On Friday, the market opened at 10.450/10.500 and closed at 10.570/10.620. The currency came under pressure as emerging markets continued to be weak and kwacha-positive news has been lean on the ground. Relief may not come immediately.”

However, current elevated USD/ZMW rates could encourage some selling, particularly as we enter the latter stages of the quarter and companies prepare to pay provisional taxes, it has noted.

“Aggressive demand for the dollar continues to dictate the market. Due to the wide disparity between demand and supply, any supply of dollars poured onto the market is being absorbed by the existing demand. The market yesterday closed at 10.775/10.825.
We believe that the kwacha will continue to depreciate as there is no cushion to support it. Levels of 10.900 might be broken in today’s (yesterday’s) trading session,”  FNB Zambia stated yesterday.

The central bank is still actively in the market via the Open Market Operations (OMO) trying to wipe out excess liquidity with commercial banks obtaining a return ranging from 9.5 per cent to 9.75 per cent.

“The central bank continues with its quest to wipe out excess liquidity in the cash market via OMO. Amounts of up to ZMW1,070m were accepted yesterday with a return of 9.5%-9.75%. Liquidity on the market has reduced to ZMW622m,” stated FNB Zambia.

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