Local professor of Economics Oliver Saasa says it is not prudent for the government to continue forcing Bank of Zambia to offload Eurobond dollars on the market to keep the kwacha afloat when real market players know that the real value of one dollar is above K15.
But the Bank of Zambia has continued intervention in the foreign exchange market such that on Thursday, the kwacha reached the strongest intraday level of K10.91 per US dollar. But because the Bank of Zambia did not release Dollars on Friday afternoon, the Kwacha quickly fell to K11: 91 by close of business on Friday.
Since last week’s fall of the kwacha to K14.63 against the US dollar, State House has instructed the BoZ to continue pouring foreign currency onto the market to strengthen the local currency.
Since then, the kwacha has been showing some significant gains sometimes but posting huge depreciations on the days the BoZ did not release borrowed dollars such as on Monday, Tuesday Morning and Friday Afternoon.
“With the market awash with dollar, a move in this direction seemed inevitable,” according to Finance Bank newsletter. “However, corporate buyers showed appetite at these levels and drove the market to K11.60 and K11.62 before closing at K11.50 and K11.52 for bid and offer against the US dollar.”
On Wednesday, the Kwacha closed trading at K11.59/K11.61, 7.21 per cent stronger from Tuesday’s closing level. But earlier on Monday it has collapsed to K13. See here
But Prof Saasa said the PF regime was forcing the central bank to be using foreign currency borrowed at a higher rate to continue sustaining the kwacha, fearing a battered local currency would make the ruling party unpopular.
He said artificial appreciation of any currency came with dire consequences to the economy.
“You should allow the kwacha to find its bearing, mindful though that you should not just allow the central bank to sit and watch,” said Prof Saasa. “A very artificially strengthened currency is not good for the economy. The last place politicians should be playing games is Central Bank. They [BoZ] must retain their independence; they must play their role when they want, they can inject [dollars on the market] but they should not do it under pressure; these are technocrats…The exchange rate is a reflection of the state of the economy.”
This year alone, BoZ has spent US $510 million to support the kwacha, which has lost more than 50 per cent against major convertibles and continues to remain vulnerable in the foreign exchange market.