Lusaka - The Bank of Zambia selling dollars into the market and raising its overnight lending rate “sends a very powerful signal” the country is dealing with weakness in its currency, said Razia Khan, chief Africa economist at Standard Chartered Bank.
The Bank of Zambia has “aggressively” intervened in the market to support the kwacha, First National Bank Zambia, the local unit of Johannesburg-based FirstRand, said in an e- mailed note. The central bank also raised the interest rate it charges to lend commercial banks overnight to 25.5 percent, according to a circular dated November 10.
The rate was set at 1 000 basis points above the policy rate.
The kwacha advanced for a third day, gaining as much as 7.56 percent against the dollar to 11.555. It was 5.64 percent stronger at 11.795 by 11:29 a.m. in Lusaka, the capital. The currency has depreciated by more than 45 percent this year, the most among 155 tracked by Bloomberg, as a power crisis, low copper prices and a rising budget deficit weigh on the economy.
Increasing the overnight facility rate was “very significant –- it demonstrates the seriousness with which the authorities are dealing with currency weakness,” Standard Chartered’s Khan said in reply to e-mailed questions. “It sends a very powerful signal.”
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