Zambia’s kwacha fell more than 5 percent on Tuesday to a new record low as copper prices edged towards a six-year low on concerns over flagging demand in top consumer China.
The currency of Africa’s No. 2 copper producer tumbled 5.26 pct to 14.4100 against the dollar, stretching its losses so far this year to nearly 56 percent.
London copper futures fell to their weakest since August, moving closer to a six-year low amid a firmer dollar and prolonged economic weakness in top metals consumer China.
“The latest spurt of pressure is due entirely to international factors – ongoing concerns about China’s economy weighing on copper prices,” Standard Chartered Bank chief Africa economist Razia Khan said.
She said strong U.S. payrolls print on Friday had also solidified expectations of a December Fed tightening.
The central bank raised its benchmark lending rate by 300 basis points to a record 15.5 percent on Nov.3 to curb inflation which nearly doubled last month as the kwacha fell.
“While the 300 bps policy hike was a step in the right direction given rising inflation, in the interim period, the BoZ needs to be willing to allow interbank rates to spike much, much higher,” she said.
“These higher rates do not need to be in place for long, they do not need to change anything in Zambia’s real economy. But until this happens, the Zambian authorities will not be seen to mounting an adequate defence of the currency.”
The rate hike, the first since November 2014, also came after a steep fall by Zambia’s kwacha brought on by tumbling copper prices as the consumption in top copper consumer China slowed along with its economy.