Zambia central bank says currency appreciation genuine

Zambia's central bank said the appreciation of the local currency was genuine and triggered by a cocktail of factors, state media reported on Thursday.

The local currency, the kwacha, has posted positive gains since last Friday, with analysts indicating that it has appreciated by 12 percent.

But some commentators have argued that the appreciation was not genuine but artificial because there were no compelling economic indicators to bolster its appreciation.

But Bank of Zambia (BoZ) Governor Denny Kalyalya said the appreciation of the local currency was due to among other things increased investor confidence, weakening U.S. dollar and tight monetary measures put in place by the central bank.

"The current appreciation of the kwacha is backed by several factors. The rebound of the copper prices on the international market has also contributed to the appreciation. It is important for the public to understand that the development is genuine," he is quoted saying by the Zambia Daily Mail.

The central bank chief further said the supply of the U.S. dollar on the market has increased as corporates offload the dollars to meet monthly and quarterly tax obligations as well as individuals who were holding on to the greenback in anticipation of a further local currency appreciation.

The central bank chief, currently in Washington DC attending the International Monetary Fund (IMF)-World Bank spring meetings added that sound monetary policies the central bank was implementing has bolstered investor confidence and expressed confidence the trend may continue.

Meanwhile, Finance Minister Alexander Chikwanda said the appreciation of the local currency in the last two weeks was due to government's interventions on the monetary side of the economy.

The government had embarked on a number of interventions from both the fiscal and monetary sides including the review of fuel subsidies and procurement process and review of electricity tariffs to improve investment in the sector.

But former deputy minister of finance Miles Sampa said the current appreciation of the local currency against the U.S. dollar and other convertible currencies was not sustainable.

"This is because it is not backed by any significant improvements in economic fundamentals. Exchange rates appreciate or depreciate based on an increase or decrease in the value of exports or imports," he said on his Facebook page.

"For the last year or so, government has told us that the huge kwacha slump was due to reduced global demand and reduced world market price of our main export commodity, copper. The question is; has the price and demand of copper now improved significantly on the global market," he added. Endit