US Fed move won’t affect Kwacha much, says  EAZ

Sat, 17 Dec 2016 10:58:30 +0000

By BUUMBA CHIMBULU

 THERE will be less volatility in the Kwacha as a result of the decision by the United States Federal Reserve to increase the interest rates by 0.25 percent, says the Economic Association of Zambia (EAZ).

EAZ president Chrispin Mphuka explained that a low volatility with currencies attached to the green back was normal once such developments happened in the US.

“We may not expect much volatility out of it; yes, it will depreciate while the dollar will appreciate but it will not be like it used to be before because speculation is lower on the market,” he said.

Dr Mphuka observed that the Kwacha depreciated way back during such scenarios because of speculation on the market which he said had been dealt with by the Central bank. “The depreciation will be lower now because there are tighter controls in terms of exchange rate and you have seen a bit of stability due to measures that the Central Bank has put in place.

“That time the movement was exaggerated; instead of having  a normal depreciation, it was exaggerated deprecation because of those people who speculated but now the BoZ has reduced that window for speculation so that is what will tame the effect to normal levels,” he said.

Dr Mphuka explained that the increase in the Fed reserves would only affect short term investments, commonly known as portfolio investments.

“The dollar will appreciate a bit and attract more investment. This mainly affects what we call portfolio investments which are short term, like if you see interest rates go up somewhere you take your money there,” he said.

On Wednesday this week, the Federal Open Markets Committee decided to increase rates by 25 basis points with effect from yesterday.