By Francis Chipalo
The Zambian kwacha has shown meaningful strengthening, trading at approximately K18.70 per US dollar in early February, up from around K20.00, driven by improved foreign-exchange market conditions, renowned economist Kelvin Chisanga says.
Chisanga attributes the appreciation to stronger foreign-exchange inflows from copper export earnings, improved repatriation of foreign earnings, and increased supply of US dollars in the domestic market, easing FX liquidity pressures.
Chisanga observes that the development is rather than a short-term or speculative demand activity, but a positive convergence of key fundamental factors altogether.
In a statement , Chisanga says the movement of the currency from around K20.00 to approximately K18.70 per US dollar in early February represents a meaningful strengthening, underpinned by real economic flows, balance of payments effects and speculative demand factors.
He notes that the key driver has been stronger foreign-exchange inflows, particularly from copper export earnings, mining outfits are converting US dollars to meet up local operational expenses.
Chisanga explains that higher export receipts and improved repatriation of foreign earnings have increased the supply of US dollars in the domestic market, easing FX liquidity pressures and supporting a more orderly exchange-rate environment.
“At the same time, immediate demand for foreign currency has moderated, owing to the fact that dollar has been on the losing side, so more market participants are being forced not to hoard in dollars”.
He further notes that import pressures remain contained due to local sufficient supplies, while improved confidence has reduced precautionary and defensive dollar buying by most businesses.
“This imbalance between stronger dollar supply and softer demand has mechanically supported the kwacha with the trade mechanics. From a market perspective, the exchange-rate adjustment has been calm and technically supported, indicating stability rather than volatility”.
Chisanga adds that sustaining this trend will depend on continued export performance, disciplined fiscal management and consistent macroeconomic policy implementation.