PANAPRESS
Panafrican News Agency
Zambia: Kwacha's continued depreciation triggers panic
Lusaka, Zambia (PANA) - Panic has gripped market participants following the depreciation of Zambia's national currency, Kwacha, thereby undermining the smooth operation of the foreign exchange market, according to the Bank of Zambia (BOZ).
“Left unattended to, such panic sentiments might eventually undermine the Bank’s effort of delivering low and stable rates of inflation,” the Bank warned Friday.
The Banks said it had responded by tightening monetary policy to stay on course with the attainment of the inflation target of 6.5 percent for 2014.
“Liquidity-draining open market operations have been stepped up while the recent increase in the statutory reserve ratio is expected to take effect on 10 March,” BOZ said, adding that recent developments in foreign exchange market have raised concerns not only to the Bank but also the public at large.
The central bank said it would continue to pursue a flexible exchange rate policy and expressed the belief that exchange rate flexibility is vital for achieving timely macroeconomic adjustment.
It however said that flexibility does not imply complete absence of the Bank’s intervention in the foreign exchange market, particularly in response to disorder and panic among market participants.
BOZ explained that the depreciation trend in the exchange rate observed overtime is due to a combination of domestic and international market developments.
It also observed that the US Federal Reserve Board’s decision to reduce the amount of US dollar liquidity supplied through its quantitative easing programme has broadly affected several emerging markets, including Zambia’s.
Specifically, the Federal Reserve’s course of action has led to fears of slower growth of major emerging economies, particularly China, says the Bank.
“Consequently, the price of copper, Zambia’s major export earner, remained subdued thereby undermining investor optimism. Further impact has also been felt through a slowdown in portfolio investment inflows, which hitherto played an important role in financing our current account deficits,” BOZ said
The Kwacha on Friday was trading at K6.026 and K6.036 to a US dollar for buying and selling, respectively.
-0- PANA MM/SEG 7March2014
“Left unattended to, such panic sentiments might eventually undermine the Bank’s effort of delivering low and stable rates of inflation,” the Bank warned Friday.
The Banks said it had responded by tightening monetary policy to stay on course with the attainment of the inflation target of 6.5 percent for 2014.
“Liquidity-draining open market operations have been stepped up while the recent increase in the statutory reserve ratio is expected to take effect on 10 March,” BOZ said, adding that recent developments in foreign exchange market have raised concerns not only to the Bank but also the public at large.
The central bank said it would continue to pursue a flexible exchange rate policy and expressed the belief that exchange rate flexibility is vital for achieving timely macroeconomic adjustment.
It however said that flexibility does not imply complete absence of the Bank’s intervention in the foreign exchange market, particularly in response to disorder and panic among market participants.
BOZ explained that the depreciation trend in the exchange rate observed overtime is due to a combination of domestic and international market developments.
It also observed that the US Federal Reserve Board’s decision to reduce the amount of US dollar liquidity supplied through its quantitative easing programme has broadly affected several emerging markets, including Zambia’s.
Specifically, the Federal Reserve’s course of action has led to fears of slower growth of major emerging economies, particularly China, says the Bank.
“Consequently, the price of copper, Zambia’s major export earner, remained subdued thereby undermining investor optimism. Further impact has also been felt through a slowdown in portfolio investment inflows, which hitherto played an important role in financing our current account deficits,” BOZ said
The Kwacha on Friday was trading at K6.026 and K6.036 to a US dollar for buying and selling, respectively.
-0- PANA MM/SEG 7March2014
