Zambia’s kwacha fell to the lowest level in six weeks on speculation the central bank’s ability to support the currency is diminishing and as former President President Rupiah Banda was questioned for corruption.
The kwacha weakened as much as 0.9 percent to 5.42 per dollar, the lowest intraday level since Feb. 1. It was trading 0.3 percent down at 5.3850 per dollar by 5:20 p.m. in Lusaka, the capital. The currency has dropped 3.6 percent this year.
“The kwacha is on a weakening trend due to fundamental reasons such a growing current account deficit and political uncertainty,” Mike Keenan, a currency strategist at Barclays Plc’s Absa Capital unit in Johannesburg, said by phone. Absa estimates the currency will drop to 6.20 per dollar by the end of the year. “The central bank has spent a considerable amount of its reserves to defend the kwacha and it may not be in a position to do that aggressively.”
Africa’s largest copper producer reduced its foreign currency reserves by $36 million this year to support the kwacha, Emmanuel Pamu, the Bank of Zambia’s economic director, said on Feb. 7. The central bank said it will continue to sell dollars to bolster the currency, which should trade at 5 to 5.10 per dollar according to Finance Minister Alexander Chikwanda to avoid inflationary pressures and an increase in government debt costs.
Banda, who became president in 2008 after Levy Mwanawasa died, faces questioning by a government task team investigating alleged corruption after parliament removed his immunity from prosecution.
Banda arrived at the offices of the Drug Enforcement Commission in Lusaka with police in riot gear, para-military officers and security guards blocking off the road. Police using batons pushed back dozens of Banda’s supporters as they surged forward when he entered. Banda was defeated in the 2011 presidential vote by Michael Sata.