The local currency is now depreciating in ‘auto pilot’ fashion against the United States Dollar and other major convertible currencies.
The Kwacha has shown no signs of improvement since it ventured on this slippery slope from around October 17, 2022 when it was trending at K15.89 to US$1 to now trading at K20 against the Greenback.
Once the world’s best performing currency, the Kwacha has now depreciated by over 20 percent against the Dollar, this coming against the attendant challenges a weak local currency especially for an import oriented economy comes with in terms of the high cost on imported goods (fuel, retail goods, food, cars, spareparts etc), which subsequently feed into the general pricing in the local market.
The Bank of Zambia (BoZ) recently hiked the repo rate from 9 percent to 9.5 percent, with market analysts indicating that this was partly in an effort to shore up further depreciations as the hiked interest rates make borrowing more expensive and in the process limiting liquidity and in turn making the local currency more expensive for many to afford.
With the hiked repo rate by BoZ, analysts have opined that the banks and other financial institutions will further hike their rates for lending money.
The weakened Kwacha is also making the cost of servicing foreign debts more expensive since the debt servicing has to be repaid in foreign currency. Therefore if the government in October 2022 was spending K15.89 on each Dollar to repay the debt, now they are spending K20 for every Dollar to do that.
The only ones rejoicing with this weakened Kwacha are those who remit money into the country from outside the country and the exporters, hence the need to enhance the productive sector.
