Zambia Kwacha Falls as Minister Pledges Free-Floating Rate

  • Government will be careful not to deplete forex reserves
  • Zambian economy is still 'very strong,' not about to collapse

Zambia’s kwacha fell following two days of gains, after Finance Minister Alexander Chikwanda said the country is committed to keeping a liberalized foreign-exchange rate regime.

The currency of Africa’s second-biggest copper producer depreciated by 5.7 percent against the dollar to 12.42 by 3:33 p.m. in Lusaka, the capital.

“Government is committed to maintaining a free-floating exchange rate,” he told lawmakers on Friday, urging businesses to support efforts to stabilize the kwacha, which this year has weakened the most against the dollar of any currency monitored by Bloomberg. “We will be cautious not to undertake any measure that will lead to further depletion of our already meager foreign reserves.”

World Currencies in 2015

Falling prices for the copper Zambia relies on for 70 percent of exports, the strengthening dollar, and a power crisis have all contributed to the kwacha’s 49 percent plunge this year. A weaker currency results in higher import prices and increases the cost of servicing the $3 billion of Eurobonds Zambia has sold since 2012.

The kwacha had strengthened against the dollar the previous two days, supported by dollar sales by the central bank, according to Brian Chintu, head of investments at Lusaka-based Madison Asset Management Co.

“My personal opinion is there are no fundamentals to support a stronger kwacha position,” he said Friday, before Chikwanda spoke.

Despite the kwacha’s decline, Zambia’s economy is still “very strong,” Chikwanda told lawmakers. “The Zambian economy is not collapsing, it’s not about to collapse.”

The government and the central bank are monitoring the currency closely and will stabilize it through policy measures and fiscal consolidation, he said.

Zambian President Edgar Lungu Sept. 30 ruled out reintroducing foreign exchange controls, while calling for market participants not to panic.

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