THE kwacha’s continued depreciation shows the economy is still grappling with low productivity which will see the local currency’s value fall further, financial market analyst Maambo Hamaundu has said.
The kwacha has again broken the K10 psychological barrier as demand for the US dollars continues to outweigh supply.
The local unit appreciated to K9.20 per dollar a few weeks ago, a scenario that the government rode on to show the nation ‘what had been achieved’.
But the local currency’s perceived strength could not hold as demand for the dollar started to pick, putting the kwacha under pressure to currently trade between K10.00 and K10.05 on interbank.
In an interview, Hamaundu said the kwacha’s continued depreciation against major currency convertibles shows that Zambia’s economy is still grappling with low productivity and as such, should be expected to lose even more value in the coming weeks.
“I think that the indication in terms of general direction is that our kwacha will continue losing strength; I don’t see it really gaining any strength in the short-term. We might see a continuing trend towards depreciation as opposed to appreciation,” Hamaundu said.
“Low productivity, then of course, we are an import-oriented economy. It could also be a bit of elements of speculation creeping in, resulting in high demand. Generally, there is high demand in greenback, but the supply remains relatively low.”
He added that the kwacha’s depreciation after the local unit marginally appreciated a few weeks ago also goes to show the over-reliance on the central bank’s tightened monetary policy.
“Of course, it shows you can’t over-rely on one [monetary] policy. As much as it has helped, the rate could have been worse than it is now, but you need to produce and therefore, improve your traditional and non-traditional exports if you have to sustain a strong currency,” said Hamaundu.
“It is not even a question of argument; I think it is a reality. In the first quarter of the year, it was almost reaching a level where we could say it was stable. But afterwards, we have seen that the rate has been very volatile; it has not yet attained that stability.”