Zambia Kwacha Gains Most in 7 Years on Central Bank Intervention

  • Currency makes biggest advance in world to pare 2015 losses
  • Interbank market `awash' with dollars, may support more gains

Zambia’s currency strengthened the most in seven years as traders said the central bank sold dollars to stem the kwacha’s slide after it fell to a record low this week.

The kwacha gained more than 11 percent to 12.38 per dollar by 12:04 p.m. in the capital, Lusaka, the biggest advance among more than 150 currencies tracked by Bloomberg and most since November 2008. The currency is rallying for a second day after falling to an all-time low of 14.6050 on Tuesday.

“With the central bank’s continued intervention, the interbank market is awash with dollars,” Lusaka-based Zambia National Commercial Bank Plc said in a note, saying banks will probably be selling greenbacks after holding long positions. “The kwacha is likely to hold firm against the dollar amid a bullish tone.”

The currency of Africa’s second-biggest copper producer has dropped 48 percent this year against the dollar 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.

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.

FX Reserves

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 regulator, 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.

“The latest talks with IMF representatives are apparently for a pre-scheduled meeting and not directly related to the latest plunge in the currency,” Gareth Brickman, a market analyst at ETM Analytics NA LLC in Stamford, Connecticut, said in an e-mailed note. “Until further clarity is garnered on this front, extreme caution is advised as the kwacha’s fundamental fragility is still very high and the risk of foreign-exchange controls still looms large.”

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