Zambia’s Kwacha May Weaken Up to 5% Over 12 Months, Bank Says

Zambia’s kwacha is set to continue its slide against the dollar and may depreciate as much as 5 percent over the next 12 months, according to the country’s biggest lender, Zambia National Commercial Bank Plc.

The currency of Africa’s largest copper producer will probably remain stable in the “short term,” Managing Director Martyn Schouten said in an interview on April 5 in Lusaka, without giving a time frame.

“There will be some depreciation, probably in the range of 1 percent to 5 percent over the next 12 months,” he said. “Crucial, of course, is the price of copper.”

The kwacha has weakened 3.7 percent against the dollar this year, making it the continent’s sixth-worst performer and prompting the southern African nation’s government to take measures to stem the decline. The currency eased 0.9 percent to 5.40 per dollar by 11:39 a.m. in Lusaka. Copper for delivery in three months rose 1.3 percent on the London Metal Exchange to $7,501 a ton. The metal, used in plumbing and electrical wiring, has weakened 5.4 percent this year.

A weaker kwacha causes higher inflation and makes it more expensive for government to repay its $750 million Eurobond, according to Finance Minister Alexander Chikwanda. The yield on the debt, due September 2022, gained one basis point to 5.49 percent today.

The Bank of Zambia held talks with the country’s lenders after Chikwanda said in a Feb. 26 statement to lawmakers the banks were operating as a “cartel” and are “led into temptation” of profiting through currency manipulation. The Bankers’ Association of Zambia denied the allegations.

Barclays Plc, Standard Chartered Plc and Standard Bank Group Ltd. also have operations in Zambia.

President Michael Sata last month signed a new law partly aimed at strengthening the local currency, Deputy Finance Minister Miles Sampa said on March 31. The policy requires exporters to deposit foreign-currency earnings locally.

“At the present time its fairly unclear to us” what effect on the currency the new law will have, Schouten said. The government will issue a statutory instrument with the details of the Bank of Zambia Amendment Act, Sampa said March 20. The currency may strengthen to below 5 per dollar as a result of the policy, he said.

Zambia National Commercial Bank, or Zanaco as the lender is known, has gained 44 percent on the Lusaka Stock Exchange this year. It traded unchanged at 0.26 kwacha today.

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