THE Bank of Zambia (BoZ) has attributed the fall of the local currency to, among other reasons, operational challenges at key mining firms that have been supplying significant foreign exchange.
Explaining the drastic depreciation, in a statement yesterday, the Central Bank however pledged that it would continue to use all available monetary and foreign exchange intervention options to address the situation.
“Between mid-August and September 14, 2020, the Kwacha depreciated by 8.0 per cent to K19.81 per US dollar from Kl 8.34, largely reflecting imbalances in the foreign exchange market. On the supply side, lower foreign exchange sales have been noted from the mining sector as well as foreign financial firms who typically invest in government securities,” BoZ stated. “In addition, operational challenges at key mining firms, which have been significant suppliers of foreign exchange in the past, have compounded the situation.”
On the demand side, BoZ stated that there had been a significant increase in foreign exchange requirements for the importation of agricultural inputs and other necessities.
It stated that this elevated demand was in addition to continued debt service payments that presented the largest call on international reserves.
“In June 2020, mining companies began paying all of their statutory tax obligations, in addition to mineral royalties to Zambia Revenue Authority through the Bank of Zambia. This has contributed to foreign exchange reserves. In August and September, the Bank of Zambia has been able to provide foreign exchange liquidity back into the market to help meet the current significant increase in demand amidst reduced supply,” stated BoZ. “As has been indicated in previous Monetary Policy Committee (MPC) statements, the exchange rate has an important impact on inflation outcomes. Addressing volatility in the exchange rate, whilst allowing it to adjust to market conditions, is therefore a critical ingredient in achieving and maintaining price and financial system stability. The Bank of Zambia will continue to use all available monetary and foreign exchange intervention options, as appropriate, to address adverse developments in the foreign exchange market.”