Poll: Kwacha to weaken further by year end

The Zambian kwacha is expected to soften further against the dollar by the end of this year, in response to a possible economic slowdown in key copper-buyer China, a Reuters poll showed on Thursday.

At current levels of 4,820 the kwacha ZMK= is down by 3.6 percent from its 2009 close of 4,631 against the dollar.

The currency has however gained about 8 percent in the past three months mainly due to a rise in copper prices since hitting this year’s low of 5,280 early in June.

Policymakers have welcomed the currency’s recent gains, saying this would help the southern Africa country reach its target of 8.0 percent inflation by year-end.
A Reuters poll of 10 analysts showed the median consensus was for the kwacha to end the year at 5,000 to the dollar.

“Near term ZMK weakness is premised on our expectation of further indications that the pace of Chinese economic growth will slow,” said Razia Khan, head of Africa Research at Standard Chartered in London.

Copper prices have risen in the past few months partly due to strong demand from China, boosting the kwacha.

“Beyond this however, there is a favourable structural picture which should feed through into further currency strength.” said Khan, referring to expectations that the currency will gain some ground next year.

Consensus was for the kwacha to firm to 4,850 by the end of March next year.

“Sustained economic activity and sustainable high copper prices should help the kwacha recover in the short to medium term.” said Stuart Culverhouse, senior economist at Exotix in London.

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