BY BUUMBA CHIMBULU
LOW international reserves have contributed to the depreciation of the Kwacha as the Bank of Zambia (BoZ) is unable to offload dollars on an open market to ease the pressure caused by COVID-19.
This is according to the Economics Association of Zambia (EAZ) Financial Analyst and Strategist, Mutisunge Zulu.
Mr Zulu explained that the BoZ did not have the luxury to offload dollars on the open market due to inadequate international reserves.
Zambia currently has about US$1.4 billion of reserves which is equivalent to six weeks of import cover while the Kwacha as of last week was trading between K18.50/ K18.55 against the dollar.
“The Central Bank does not have the luxury to sell dollars on the open market because it are also looking for dollars. So ideally if we had adequate reserves, then the Central bank would have been selling a good chunk of dollars to ease pressure,” Mr Zulu said in an interview.
Mr Zulu emphasised that the Kwacha was not the only currency which was currently under pressure against the dollar as other units such as the Rand were also experiencing the same pressure.
“Some of the currencies which appear to be performing better than the Kwacha, the real picture is that if you remove the reserve buffer, they will actually also be running away because they have this buffer, they are able to stabilise their currencies,” Mr Zulu explained.
Mr Zulu also explained that the world currently was jittery and nervous because of COVID-19 which had forced investors to lock up their money in safe havens assets such as investing in gold.
He further explained that the world was also investing in the United States treasuries, creating scarcity of dollar while making it strong against other currencies.
“United States treasuries are also safe haven assets and there is scarcity of dollars in the world and everyone is looking for dollars and that makes the dollar very strong,” Mr Zulu said.
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