ZANACO – one of the leading commercial banks in Zambia says the recent appreciation of the kwacha can be attributed of the positive sentiments that surround government’s announcement of a US$1.4 billion deal with the International Monetary Fund (IMF) as it has improved sentiments among offshore investors who would want to invest in Zambia.
The Bank’s Head of Economic Research Dr. Patrick Chileshe said the positive sentiment has attracted investors try to invest in Zambia, they convert their foreign currency into local currency and that increases the supply of the US dollar on the market thereby largely strengthening the kwacha.
When asked by the Zambian Business Times – ZBT to extrapolate where the Kwacha may settle, Dr. Chileshe noted that it is difficult to speculate where the currency will settle, especially when it is sentiment driven because what might happen is that it may exceed where it is supposed to be because of the behavior of market players.
Chileshe added that the estimates indicate that the kwacha is undervalued and the fundamentally correct value is at about K15 a dollar, so it is expected to reach K15 a dollar but because of the behavior of financial market players, it may overshoot and go below K15.
“That does happen overtime but usually it will re-correct so that is what I can say but for you to pin point that it is going to settle at this level in a particular period of time is usually difficult when it is largely driven by sentiments of investors”, he said.
Speaking in an interview with the Zambian Business Times-ZBT, Chileshe said the investors are broadly offshore (foreign) investors, including pension houses and fund managers who manage money for other people and are looking to invest in government securities, which are relatively yielding good returns.
When asked to give specifics on which offshore investors flooded into Zambia and whether the funds or US dollars inflows are expected to continue into the medium term, Chileshe stated that “It’s a huge number of investors, I cannot pinpoint one particular investor”, he told ZBT.
A check by ZBT on Wednesday 15 December 2021 reveals that some of the gains initially enjoyed by the local unit – the Kwacha has started to wane off. The trading pair had reached the K15 per dollar rate but the Kwacha has again started shedding some of its initial gains and is currently trading between K16.3 to K16.5 per US dollar.
