Zambia's Kwacha Falls the Most Since 2009 Amid Copper Slump

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  • Traders hoarding dollars while importers rush to buy
  • Electricity crisis and low copper price weighing on currency

Zambia’s kwacha fell by the most in more than six years, reaching a record low against the dollar, as a slump in copper prices and an electricity shortage weigh on the economy.

The currency of Africa’s second-biggest copper producer retreated as much as 5.5 percent to 9.4961 per dollar, the biggest drop since May 2009, according to data compiled by Bloomberg. It was 3.5 percent weaker at 9.3153 by 3:34 p.m. in Lusaka, the capital, bringing its decline this quarter to 24 percent.

“The weakness is obviously self-perpetuating as would-be sellers hold off for a higher price while importers rush to buy, fearing worse levels,” First National Bank Zambia, a unit of Johannesburg-based FirstRand Ltd., said in an e-mailed note to clients on Wednesday. “Demand is further increased by everyday users wishing to preserve value by converting their kwacha to dollars.”

Copper prices near six-year lows have hurt the currency of Zambia, which relies on the metal for more than 70 percent of exports, at a time when a power crisis is reducing mining output. The currency has depreciated 32 percent since January, making it the world’s worst performer after the Belarus ruble, according to data compiled by Bloomberg.

Conventional monetary policy tools, including raising interest rates last year, from the Bank of Zambia have “failed” to halt the currency’s slide, according to Gareth Brickman, a market analyst at ETM Analytics NA LLC. That could force the central bank to introduce exchange controls, he said.

“These price dynamics over the past few days are just showing you there’s a chronic shortage” of dollars, Brickman said by phone from Stamford, Connecticut. “It’s just pointing to the risk that they introduce some form of foreign exchange or capital controls to try and get a handle on this.”

The central bank will be “acting within the next day or two” to support the currency, Brickman said.