The Bank of Zambia has received enquiries from the public to clarify the factors behind the recent sharp appreciation of the Kwacha against the United States dollar.
In the May 2021 Monetary Policy Committee (MPC) Statement, the Monetary Policy Rate was maintained at 8.5 percent despite the notable increase in inflation.
In doing so, the MPC had stated the following:
“…While inflation is projected to remain above the upper bound of the 6-8 percent target range over the forecast horizon, inflationary pressures are expected to ease in view of the improved supply of food, particularly maize and wheat following a good crop harvest. In addition, the significant improvement in copper prices and renewed interest in domestic Government securities by non-resident investors are supportive of the foreign exchange market and in turn lower inflation going forward. The decision also recognises existing vulnerabilities in the financial sector and fragile growth. To restore and anchor macroeconomic stability, the implementation of fiscal adjustment measures in line with the Economic Recovery Programme and understandings reached in discussions with the IMF remain critical.”
The expectations of the MPC with respect to the exchange rate have begun to materialise. Having come under immense pressure in 2020, owing to the weakening macro-economic environment, which was significantly exacerbated by the COVID 19 pandemic, the Kwacha has broadly stabilised in 2021. As at July 23, 2021, the year-to-date rate of depreciation of the Kwacha against the US dollar slowed down significantly to about 5.0 percent compared with almost 30.0 percent over the corresponding period in 2020. More recently, the Kwacha was trading at K21.39 on July 23, 2021 compared to K22.64 on July 1, 2021, representing an appreciation of 5.5 percent. The appreciation of the Kwacha largely reflects changes in the actual supply of foreign exchange and expectations of further improvements in supply associated with the forthcoming IMF Special Drawing Rights (SDR) allocation, improved prospects of a formal Extended Credit Facility (ECF) programme with the IMF, as well as buoyant copper prices.
The strong recovery in copper prices to the current level of US$9,521 per metric tonne from a low of US$4,745 in March 2020 has contributed to sustained strong export earnings. This has resulted in improved foreign exchange flows from the mining sector through tax receipts remitted directly to the Bank of Zambia in US dollars. In view of this, the Bank of Zambia has been able to provide more foreign exchange liquidity back into the market to reduce excess demand experienced since mid-2020. As at July 23, 2021, the Bank of Zambia sold US$687.5 million to the market compared to US$86.0 million over the same period in 2020. In addition, foreign exchange inflows from non-resident investors purchasing Government securities have significantly increased, further providing liquidity to the foreign exchange market. These inflows have contributed to the substantial reduction in outstanding demand to below US $5.0 million currently from an estimated peak of US $418 million in May 2021.
Besides supporting the market, the Bank has been able to build up international reserves, which stood at US$1.4 billion at the end of May 2021 compared to US$1.2 billion at end-March 2021. The Bank of Zambia has also continued with the local gold purchase programme, accumulating about US$22.0 million in monetary gold as at July 23, 2021. The improvement in the reserve position increases the country’s ability to respond to unexpected external events and the ability to address volatility in the exchange rate.
The Bank of Zambia will continue to use all available monetary and foreign exchange intervention options, as appropriate, to address developments in the foreign exchange market. This is consistent with the policy goal of maintaining a flexible but relatively stable exchange rate that reflects underlying market conditions over time.
It is important to note that monetary policy remains focused on containing escalating inflation back to the target range of 6-8 percent over the medium term. In this regard, managing risks to the inflation forecast, which include those associated with financial stability and the COVID-19 pandemic, remains critical. In addition, the full implementation of the Economic Recovery Programme (ERP), including the securing of an IMF programme, is a central element in addressing macroeconomic challenges and supporting sustainable and job-creating growth.
Issued by
Besnat Mwanza
Communications Division
Bank of Zambia
Box 30080
LUSAKA
Email: [email protected]
This is what we are saying, BOZ intervention in the market by injecting USD 687 million there by propping the kwacha with artificial gain. What we must not forget is the that the prices of goods and services have skyrocketed to marginalize the masses who cannot afford to buy them. What then is the essence of prudent economic management when things on the ground are saying something else? Is this the best we can do as Zambians with all the knowledge we have gained over the years? Yesterday, I could not believe when I saw the PF dishing meal meal to poor people who thronged their offices and promised them more when they vote for them. So the trick is, create massive poverty and then dish hand outs in the name of caring for the poor, what a cliché of misdirected dander heads.
This appreciation of the kwacha is very much welcome, if only to help with arresting the rate of inflation. The depreciation has been too rapid in the recent past and has caused havoc to many families.
So you will hear disciples of prophet Hakainde. They will rubbish all the explanation kaili their prophet is the best economist in the weldi.
Ipitilize so chabe
Some ydiots will disagree. We know you perpetual haters
Only tribal upnd supporters especially those broke ones in diaspora are angry about this good development. It is because the more it appreciates the less they get for their imperialist currencies. Fcuk off
If the rate of dollar goes down we are all happy but can BOZ maintain this rate? Is it
A co incident it has dropped at the time of
Elections?
Where is my comment??
“As at July 23, 2021, the Bank of Zambia sold US$687.5 million to the market compared to US$86.0 million over the same period in 2020. ”
This is the answer why the Kwacha has appreciated everything else is just jargon and political spin doctoring …Mwunga doing everything to appease his boss nothing else that’s the Lazy Lungu appointed him a cadre.
Does the average Zambian really understand this jargon?
My Point – Really laughable its so obvious even the once professional BOZ has been turned into cadres…these guys were so professional to the point they would step out of the room when you started talking about politics but today they are talking about bumper harvests. We invest alot of money in training these Economists at BOZ at UNZA and abroad for further studies but now they are headed by a drunkard cadre accountant appointed by an incompetent President.
Positive thinking is a way to go. Copper prices have more than doubled and copper production has increased. Second improved supply of food, particularly maize and wheat following a good crop harvest. Copper prices are likely to reach $15,000 per tonne by end of 2023 and at the same time Zambia is likely to produce more copper. Turning North Western province, Northern and Muchinga agriculture provinces will minimise drought adverse impact. Cobalt prices have also increased and are likely to stay high for a long time. PF, after easily winning 12 August election, should encourage manufacturing industries to increase on exports and reduce on imports. VOTE ECL AND PF FOR A BETTER ZAMBIA>
This is NEWS for politicians and cadres to b.i.tch about, for the ordinally person, no change, for now.
For as long as there is no foreeable impact on prices or living standard for the people, one can wipe or scratch his a,sz with this GOOD NEWS.
Appreciation at this point means that, things might have stopped going south, we are just at an inflection point, no guarantee things will get back to level of 2018 for example. So hold on to this excitement. It is good news for the GRZ, and I careless how it was achieved, but has not dripped yet to the people hence nothing to be excited about.
Garlic – Dont be a simpleton… Explain how Zambia benefits if Copper price is increased in the SHORT TERM …you just spew nonsense you dont understand, you think KCM is operating at full capacity? You think you are getting the benefits from Mopani Mine? Go and read the terms of that sale?
You see guys, if our HH wins then the kwacha will be so strong and its will be BAD for us who send money to our families.
Us in diaspora benefit from the useless PF.
imperialist currencies>>.diaspora >>> Golden pistol bab00ns >>ugly wives>> St u p i d Kids
Who in hell doesnt believe this chap lacks an education and isnt paid to blog this trash
there is no way he is capable of running any business with his attitude
Just a low life are you Kz
I really don’t understand the arguments about what BOZ did to intervene this is done all over the world and it’s the reason for healthy reserves at the central bank. Last year the intervention was low because BOZ had very low reserves to maintain healthy exchange rate and the forex inflows in the economy had dropped significantly so the kwacha was on rapid decline. The price of copper has gone up meaning more remittance to BOZ as well as excess export of maize and other grain are supporting the strengthening of the Kwacha. Mind you inflation is the country is purely dollar dominated but this has a serious effect on other fundamentals hence BOZ intervention to stabilise the market. What that’s practically means that since inflation is dollar dominated, continued good inflow of forex…
I really don’t understand the arguments about what BOZ did to intervene in the market this is done all over the world and it’s the reason for healthy reserves at the central bank. Last year the intervention was low because BOZ had very low reserves to maintain healthy exchange rate and the forex inflows in the economy had dropped significantly so the kwacha was on rapid decline. The price of copper has gone up meaning more remittance to BOZ as well as excess export of maize and other grain are supporting the strengthening of the Kwacha. Mind you inflation in the country is purely dollar dominated but this has a serious negative effects on other fundamentals hence BOZ intervention to stabilise the market and that’s one of their roles.What that practically means is that since inflation is…
is dollar induced , the continued positive inflow will affect other fundamentals like inflation and exchange rate and general reduction in the prices of goods.
The question is can this be sustained and the answer is yes. Copper prices will continue going up because the prices are supported by strong fundamentals. Globally the economy has to go green failure to which it must brace itself for worse catastrophies than we’ve experienced in climate change. Owning majority shareholding in Mopani and taking over of KCM and continued support to agriculture sector and marijuana cultivation once implemented as well as export of power all point to health inflow of forex. This is also coupled with reduced forex expenditure since we relatively have a fair share of infrasture to support growth. Now we can rely on internally sourced resources and relatively fair credit to build infrastructure.
The big one is that after August 12th will have cleared off the way a naughty and acrimonous political enviromment created by one negatively energised political party and pave way for decent politics and improved investor confidence. Thats why alebwelelapo!
#1 Bamwine:, Why do countries have reserve Banks? What is their role? Are countries on auto pilot without the reserve Bank monitoring? Reserve Banks world over have a mandate to supervise and maintain and emplement Govt of the day’s policies. If it is expected that Reservebanks or central Banks are independent entities removed from national development strategies then I rest my case. However, it is also important to make coments only when you understand the roles of central banks otherwise it becomes an issue of the Blind leading the blind. Please understand that one of the central Banks roles is to release and buy forex into and out of the monetory system so that the system is not collapsed by either way. It is an act of balancing the complex economic fundamentals. Simplistic view on…
David – Really laughable..you have a simplistic view of how a country operates you think its a katemba…anyway majority of cadres think like you.
# @Tarino
Everything l have mentioned in my article can be substantiated . Goggle commentries on globle projected copper prices even from renowned Bankers. Further the other points l have listed are outlined in ERP as announced by the President. We currently witnessed the commissioning of Kafue lower and BOZ has given us the reasons for the appreciation of the Kwacha so which issue are you disagreeing with ? You have to counter my argument with yours instead of dismissing my post without offering a credible argument.
*post
I am a layman on this subject. Kindly comment on what will be the effect on the rate when creditors knock on zambia for the repayment of interest and principle of loans. That time will come. Unless loans as written off. I find it difficult to ignore external loans and bonds when discussing future rate of the KWACHA. There is tomorrow to consider. Regardless of who ever wins election, there will be a big demand for dollar to pay off dollar dominated debt obligation. LAYMAN
Why is happening only why politicians treat the masses like!! It actually foolish do these thing during election because even if was a genuine development!! It would rise eyebrows!! For me these are Just the last kicks of a dying horse. Just be to pack ur bags!! Warning for these want this government put down ur guides and us a break!! We suffered too much in this country and stop pretending that everything!! This also goes to the president. For seek of the my grandmother in the village please have a heart for Gods!! How far do you want to destroy this country. This too much even BoZ is now playing your tune!! Take care and God be u all
This days we are just hearing the kwacha is doing good against the dollar now my question is what are the benefits for the poor Zambians because we have not seen the price of good’s going down cause we heard the increase of good’s was caused by the increase of dollar but again as soon as dollar starts to gain strength against kwacha the price of Good’s will start to go up immediately,but why ?