Zambian Kwacha Rebounds From Record as Central Bank Intervenes

  • World's worst-performing currency gains first time in six days
  • IMF delegation heading to Zambia to discuss `challenges'

Zambia’s kwacha advanced for the first time in six days as the central bank sold dollars for a second day to arrest the currency’s slump to a record against the greenback, according to David Willacy, a currency trader at Intl. FCStone Europe.

The kwacha advanced 5.2 percent to 13.55 per dollar by 3:17 p.m. in the capital, Lusaka, the best performance on Wednesday out of more than 150 currencies monitored by Bloomberg. It slumped as much as 7.2 percent on Tuesday to 14.605.

The currency of Africa’s second-biggest copper producer has shed more than half its value this year as plunging metal prices, a power crisis and widening budget deficit weigh on the economy. An International Monetary Fund team was scheduled to arrive in Lusaka on Wednesday at the government’s invitation to discuss “challenges” facing the economy.

“The central bank came in very heavily towards the end of the day” as the kwacha plunged on Tuesday, Willacy said by phone from London. “This morning it’s carried along a similar type of theme.”

The Bank of Zambia has sold $510 million of its foreign exchange reserves since January to support the kwacha, Emmanuel Pamu, director of financial markets, said Nov. 3. Gross international reserves were $3.87 billion at the end of July, according to the most recent data from the central bank. The central bank, which lifted its policy rate by a record 3 percentage points on Nov. 3., may soon run out of ammunition to support the currency, forcing the government to seek IMF aid, according to Rand Merchant Bank.

President Edgar Lungu’s government has resisted seeking emergency IMF aid, choosing instead to sell Eurobonds this year to plug the budget shortfall. Ghana agreed to a loan of almost $1 billion with the Washington-based lender earlier this year after its currency, the cedi, slumped 42 percent in the 12 months through March.

“It appears as though Zambian authorities are at the end of their tether,” Nema Ramkhelawan-Bhana and Celeste Fauconnier, analysts at Johannesburg-based Rand Merchant Bank, said in an e-mailed note to clients. “The talks do not necessarily imply that the government is seeking financial aid, though its recent foray into the international market would suggest that it is in need of cash.”

While the IMF talks could assist the kwacha if the government signaled it would consider an aid package, the impact would be short-lived, Willacy said.

“The drought, the energy crisis, none of this is going to be fixed in the short term,” he said. “I don’t see how they can continue on the same path. The central bank has to do something like fix the currency as Nigeria has done.”