Zambia Seen Moving to Prop Worst Currency Performer in 2015

  • Barclays says tighter monetary policy would curb speculation
  • Copper-price plunge, power shortage weigh on Zambian economy

The Bank of Zambia will probably move to arrest a slide in the kwacha, which has depreciated against the dollar by more than any other currency this year, according to Ridle Markus, an analyst at Barclays Plc’s African unit.

The kwacha has fallen 41 percent in 2015 and 7.5 percent this week alone, putting it ahead of Belarus’ ruble as the worst performer among the more than 150 currencies tracked by Bloomberg. The currency of Africa’s second-biggest copper producer slid as much as 4 percent Friday to a record 10.865 per dollar, as plunging metal prices and a power crisis curb foreign-currency inflows.

The kwacha hit a record low against the dollar on Friday.

“We could see policy intervention at some point -- you need it,” Markus, an Africa strategist, said by phone from Johannesburg. “The problem is that if you’re not going to show some form of commitment to stem the fall, then it opens it up for speculators and pent-up demand.”

The central bank left its benchmark interest rate unchanged at 12.5 percent last month as the government cut its 2015 growth forecast for the second time to 5 percent. The bank last year subjected accounts held offshore to minimum reserve ratios, which it then increased in April to hinder speculators. The next monetary policy committee meeting is scheduled for Nov. 10.

While Bank of Zambia Governor Denny Kalyalya and Finance Minister Alexander Chikwanda have ruled out introducing foreign exchange controls, President Edgar Lungu’s spokesman, Amos Chanda, said the leader may consider introducing them in some form if depreciation continues in a “freefall.”

The rapid decline of the kwacha adds quickening inflation to the economic woes facing Zambia, which relies on imports for everything from fertilizers to fuel to instant noodles. Inflation accelerated to 7.7 percent in September, the highest level since January. 

“It’s a terrible time for the economy,” said Markus. While inflation has remained relatively steady, “at some point the dam wall will break and then inflation will really race higher.”

Barclays forecasts Zambia’s economy will expand by 3.4 percent in 2015, the weakest performance since 1998, when it contracted 0.4 percent, and down from an estimated 6 percent last year.

A steep drop in copper production expected in the second half may drive a decline in Zambia’s full-year output to "well below" the 708,000 metric tons produced in 2014, according to Barclays. The metal accounts for more than 10 percent of gross domestic product.

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