Govt to maintain flexible Kwacha exchange rate

…by allowing it to respond to the fundamentals of supply and demand

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BUUMBA CHIMBULU writes

GOVERNMENT will maintain the flexibility of the exchange rate and use it as a shock absorber against the persisting tightening of financial conditions on the international market, minister of finance, Margaret Mwanakatwe has said.

The International Monetary and Finance Committee (IMFC) has predicted that a sudden sharp tightening of financial conditions against a backdrop of limited policy space, historically high debt levels, and heightened financial vulnerabilities, will be persistent.

Commenting on this, Ms Mwanakatwe said the flexibility of the exchange rate would be maintained as a shock absorber against the downside risks projected by the IMFC.

The Ministry of Finance, she said, would continue to work closely with the Bank of Zambia to ensure that monetary policy positively influenced price stability to help inflation to remain on track toward, or to stabilise within the single digit target for 2019.

Ms Mwanakatwe said this in a statement yesterday.

“Consistent with the IMFC’s view on global currencies, we recognize that excessive Kwacha volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability.

“Therefore, we will refrain from manipulation and will not target our exchange rates for competitive or feel-good purposes. The exchange rate will be allowed to respond to the fundamentals of supply and demand,” she said.

Ms Mwanakatwe said Government expected decisions of the Central Bank to be well communicated to the market including information on the ongoing efforts aimed at building reserves to three months of import cover by the end of 2019, and higher in the medium term to long term.

She said through sustained fiscal consolidation and enhanced domestic resource mobilisation, Government would rebuild fiscal buffers.

Zambia’s reserves have fallen below US$1.6 billion for the first time in nearly 10 years.

“To protect Zambia’s economic transformation and expansion progress, the Government will also target efforts at risk mitigation, enhancement of resilience, and prompt action in upscaling growth so that we attain our annual Gross Domestic Product target,” Ms Mwanakatwe said.

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