Zambia's Kwacha Falls Most Since 2001 After Moody's Downgrade

  • Copper producer's economy faces 'perfect storm' risking growth
  • Rapid currency depreciation credit-negative for Zambia

Zambia’s kwacha fell the most on record after Moody’s Investors Service cut the credit rating of Africa’s second-biggest copper producer, a move the government rejected and told investors to ignore.

The currency depreciated by 6.8 percent to 11.6072 per dollar at 4 p.m. in Lusaka, the capital, after falling to 12.56 earlier. The rapid slump in the kwacha, down 45 percent against the U.S. currency this year, is credit-negative for the southern African nation as it makes servicing foreign debt more expensive, Matt Robinson, an analyst at Moody’s, said in a report Monday.

“These factors compound the negative fiscal and debt dynamics that were the key driver” in Moody’s Sept. 25 downgrade of Zambia’s debt, he said.

Zambia’s economy faces “a perfect storm” of plunging prices for the copper it relies on for 70 percent of export earnings at the same time as its worst power shortage, Ronak Gopaldas, a credit risk analyst at Rand Merchant Bank in Johannesburg, said by phone. Growth will slow to 3.4 percent in 2015, missing the government’s revised target of 5 percent, Barclays Plc said in a note last week. That would be the most sluggish pace since 2001.

‘Really Overdone’

A spokesman for the Bank of Zambia declined to comment, saying the central bank may respond later.

The kwacha’s move was “really overdone” amid low liquidity and the currency could pare losses “quite rapidly,” said Razia Khan, head of Africa economic research at Standard Chartered Plc. The Bank of Zambia should intervene by mopping up excess kwacha and selling small amounts of dollars, she said.

“They absolutely need to react because it poses threats to price stability,” she said by phone from London. “We could see this unwind quite rapidly, the question is when.”

The finance ministry said the downgrade by Moody’s was unsolicited. The government gave no input to Moody’s before the downgrade of its debt to B2, five steps below investment grade, the ministry said in a statement posted to its Facebook page Sunday. Zambia only has “rating relationships” with Fitch Ratings Ltd. and Standard & Poor’s, it said.

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