Zambia central bank to address volatile kwacha

LUSAKA (Reuters) – Zambia’s central bank will take measures to deal with the volatility in the kwacha’s exchange rate against the dollar, including tightening liquidity in the market, new Governor Denny Kalyalya said on Friday.

The kwacha turned on his comments, firming by 1.3 percent to 7.55, having earlier fallen more than 1.1 percent against the greenback.

The currency weakened to a record low of 7.7500 on Thursday.

The local unit has fallen about 20 percent since the start of the year, partly hit by lower copper prices and weak demand from big importer China.

Last year’s move by the Bank of Zambia to raise the statutory reserve ratio had not been enough to ease the pressure on the kwacha, Kalyalya told his inaugural media conference following his appointment in February.

“We will continue to review the situation and take necessary measures to address the volatility,” he said.

“In the current circumstance where there is high demand and less supply of dollars, what we try to do is to tighten the liquidity.”

Investors are also worried about the government’s tax row with foreign mining firms, including Glencore and Vedanta Resources, which analysts say could dampen foreign investment in Africa’s second-biggest copper producer.

The Zambian government has been at loggerheads with mining companies over higher royalties and Value Added Tax (VAT) refunds, putting investment in peril at a time when copper is around 4-1/2 year lows and economic growth is faltering.

“I am very much anxious that the dispute with the mines can be resolved as quickly as possible. I am anxious to see more dollars coming in,” Kalyalya said.

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