Zambia's kwacha firms after president orders interventions, cbank sells dollars - CNBC Africa

Zambia's kwacha firms after president orders interventions, cbank sells dollars

Southern Africa

by Reuters 0

PHOTO: Wikipedia

Zambia's kwacha firmed on Wednesday after the central bank sold dollars in the market for the second day and President Edgar Lungu directed the Finance Ministry to increase fiscal interventions to stabilise the exchange rate.

The kwacha plunged 17 percent on Monday to a record low due to the sharp slide in prices for its copper exports and a credit rating downgrade criticised by the government.

Presidential spokesman Amos Chanda said the central bank was taking appropriate measures to stabilise the exchange rate.

He did not specify the interventions ordered by the president but said Lungu urged the business community and the public not to panic because the government did not intend to revert to foreign exchange controls to shore up the currency.

"The president has emphasised that speculative behaviour is therefore unnecessary and market players are urged to play by the rules consistent with the values of a free market economy," Chanda said in a statement.

The kwacha started recovering on Tuesday, with traders citing intervention by the central bank. The kwacha gained again on Wednesday, touching 11.8800 per dollar at 0722 GMT but retreated to 12.2200 by 0958 GMT.

"The Bank of Zambia has continued to intervene by selling dollars and this has given the kwacha the much needed support," one commercial bank trader said.

"With support for the local unit from the central bank, the kwacha is likely to hold its ground against the dollar," Zambia National Commercial Bank (ZANACO) said in a note.

The central bank's deputy governor said on Tuesday Zambia would review rules governing its currency market and could counter inflationary pressures from the depreciation by tightening monetary policy.

The International Monetary Fund said in May that Zambia's economy was at risk from budget imbalances, lower copper prices and policy uncertainties. Finance Minister Alexander Chikwanda told Reuters this month the economy was likely to grow less than 5 percent this year, undershooting a 6 percent forecast.