By Staff Reporter
The rapid depreciation of the Kwacha against the United States Dollar and other major convertible currencies is threatening to worsen the already dire cost of living in the country.
The Kwacha has been appreciating since around October 2022, with intermittent marginal appreciations followed by more rapid depreciations.
The Kwacha is now selling at 21.26 to US$1. The rapid depreciation entails that the already high fuel prices are likely to worsen as the value of the imports is linked to the Kwacha-Dollar ratio.
Not just that, for an import oriented economy like ours, the price at which goods are bought into the country will further skyrocket, translating into more higher prices in local goods (inflation) and increased cost of production, and subsequently high cost of living for the ordinary Zambians.
Recent moves by the Bank of Zambia in terms of increasing the repo rate have done little to address the Kwacha slide. Usually when Central Banks increase the repo rate, the expectation is that local financial institutions will also increase their interest rates thereby reducing liquidity in the economy to aid the imbalances in the local currency.
The last time the Kwacha traded near such highs was a month before the August 2021 general elections which resulted in the ousting of Edgar Lungu from power, when the Kwacha which had been depreciating massively miraculously changed course and appreciated from the highs of around K23 to US$ to trade at around K17 to US$1 by the time he was being voted out of office.
The Kwacha witnessed further appreciations with Hakainde Hichilema assuming office, but after a few months the local currency ventured on a slippery slope from which it has been unable to recover.
BoZ in August, 2023, increased its benchmark lending rate by 50 basis points to 10.0%, noting that inflation had moved further above its target and was expected to stay high.
It was the third time this year that the bank has raised its key rate to try to tame inflation, which rose to 10.3% year-on-year in July from 9.8% in June.
Inflation is expected to average 10.2% in 2023 and 9.3% in 2024 and the first half of 2025, well above the target range of 6% to 8%, the central bank said on Wednesday.
