You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

NEW SENS search and JSE share prices

More about the app

Spare a thought for Bank of Zambia’s chief

After just a month in the hot seat, he’s had to deal with the kwacha at an all-time low.

As Zambian lawmakers ratified Denny Kalyalya’s appointment on Friday as central bank governor, the currency of Africa’s second-biggest copper producer fell to another all-time low.

President Edgar Lungu appointed Kalyalya a month ago to replace Michael Gondwe, who had been governor for three years and held interest rates at a record high. The kwacha retreated a seventh day, falling 1 percent to 7.3350 per dollar by 1:30 p.m. in Lusaka, the capital. It’s down 13% this year, the most among 24 African currencies tracked by Bloomberg.

“It’s almost a baptism by fire,” Razia Khan, head of Africa research at Standard Chartered Plc in London, said by phone. “It’s very difficult coming in when the first thing you have to worry about is maintaining price stability.”

Kalyalya, a former central bank deputy governor who was last a director at the World Bank, started his job as Zambia faced a standoff with mining companies over increased royalties, a fuel shortage in Lusaka entered a fifth day, and as the president remained in South Africa seeking medical treatment after collapsing at a public event on March 8.

Yields on Zambia’s six-month Treasury bills jumped 484 basis points, or 4.84 percentage points, to 18.3 percent on March 5, the highest in 10 years. Yields on $1 billion of debt due April 2024 climbed 37 basis points this week to 7.49 percent on Friday.

Building reserves

Much of the kwacha’s 18 percent fall over the past 12 months has been because of external factors such as a strengthening dollar and copper prices that have fallen 7.2 percent in 2015, Khan said. The depreciation will have a limited impact on inflation as many of Zambia’s imports come from SouthAfrica, she said. The rand is trading at a 13-year low and is down 7 percent this year. Zambian inflation slowed to 7.4 percent in February. A month earlier, the country sourced about 29 percent of its imports from South Africa.

Zambia’s foreign reserves were $3 billion by the end of December, about 10 percent less than three months earlier, according to Finance Ministry and central bank data. A 113.7 million-kwacha ($16 million) January trade deficit and the threat by mines including Barrick Gold Corp. to suspend operations because of lower prices and higher royalties will make it difficult for government to build reserves.

The Bank of Zambia must strike a “delicate balance” between protecting the kwacha and building reserves, Finance Minister Alexander Chikwanda said in Parliament on March 3. He warned against “undue alarm” that induces currency speculation. The kwacha’s losing streak pushed its 14-day relative strength index to 84, above the 70 level that may indicate to technical traders the move was overdone.

The currency may halt its decline and strengthen if the government can reach an agreement with mining companies over the new tax system, said Khan. Copper prices that have increased 8.2 percent from the 5 1/2-year low reached in January will also help the currency in a country that depends on the metal for more than 70 percent of its export earnings, she said.

“Nobody needs to get carried away with the short-term instability,” said Khan.

©2015 Bloomberg News



You must be signed in and an Insider Gold subscriber to comment.






Follow us:

Search Articles:
Click a Company: