Currency developing from strength to strength

The Kwacha’s positive performance is expected to continue this week driven by scarce liquidity and improvement in dollar supply, according to treasury data. And Zambia’s treasury bills last week achieved oversubscription for the first time this year driven by the renewed foreign interest after the Bank of Zambia raised yield rates. The Kwacha has continued its positive performance to close last week averaging K6.225 and K6.265 against the US dollar for bid and offer with forecast for further appreciation this week.

“We are of the view that the local unit will continue with its appreciating trend as market liquidity remains scarce,” according to FNB daily newsletter. “Nonetheless, demand for the greenback might limit Kwacha appreciation.” The local currency has gained by 9.6 per cent this month after BoZ made Kwacha expensive by tightening monetary policy instruments to halt its fall and keep inflation in check. On June 2, BoZ deputy governor in charge of administration Dr Tukiya Kankasa-Mabula announced that government deposits and vostro account deposits would be included in the computation of statutory reserves. In a May 30 circular to heads of commercial banks operating in the country, Dr Kankasa-Mabula said the government deposits and vostro account deposits would be subjected to statutory reserves at 14 per cent rate in a move aimed at stifling liquidity.

Apart from tightening liquidity levels by raising interest rates to support the currency and tame inflation, BoZ also boosted overnight rates to 10 percentage points above the policy rate from previous six percentage points. And BoZ has announced that the latest treasury bills tender auctioned last week was for the first time this year oversubscribed after yield rates reached levels not seen in a long time. “The Bank (of Zambia) further wishes to announce that the total bids which were received in the tender amounted to K602.7 million, while the allocation amounted to K475.1 million,” BoZ stated in a statement last week. “This signifies an oversubscription on the treasury bills, with the majority of the participants being foreign based. In addition to the positive indicators on the securities market, the Bank further continued to witness an encouraging performance of the local currency against its convertible partners.

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