BUUMBA CHIMBULU writes
THE Bank of Zambia (BoZ) will continue to use all available monetary intervention options to address adverse developments in the foreign exchange market, as it attributes the depreciation of the Kwacha to operational challenges at key mining firms.
Between mid-August and September 14, 2020, the Kwacha depreciated by 8.0 percent to K19.81 per United States dollar from K18.34, largely reflecting imbalances in the foreign exchange market.
In response, the Central Bank indicated that it would continue to use all available monetary and foreign exchange intervention options, as appropriate, to address adverse developments in the market.
The Central Bank in a statement from the Communications Division said mining companies in June this year began paying all of their statutory tax obligations, in addition to mineral royalties to Zambia Revenue Authority (ZRA) through the BoZ. “This has contributed to foreign exchange reserves. In August and September, the Bank of Zambia has been able to provide foreign exchange liquidity back into the market to help meet the current significant increase in demand amidst reduced supply, the Central Bank said.
The exchange rate, the Central Bank said, had an important impact on inflation outcomes.
“Addressing volatility in the exchange rate, whilst allowing it to adjust to market conditions, is therefore a critical ingredient in achieving and maintaining price and financial system stability,” the Central Bank stressed.
On the supply side, BoZ said, lower foreign exchange sales had been noted from the mining sector as well as foreign financial firms who typically invested in Government securities.
It explained that the reduced mining sector supply, although pronounced during this period, was consistent with the gradual reduction in expo1ts in general.
“This is partly due to disruptions to international trade and declining global economic growth following the outbreak of the COVID-19 pandemic.
“In addition, operational challenges at key mining firms, which have been significant suppliers of foreign exchange in the past, have compounded the situation,” the Central Bank indicated.
It also said on the demand side, there had been a significant increase in foreign exchange requirements.
These, BoZ said, included the importation of agricultural inputs, health related supplies required to address the COVID-19 pandemic, and procurement of petroleum products, including clearance of past an-ears to suppliers.
The Central Bank explained that this elevated demand was in addition to continued debt service payments that presented the largest call on international reserves.