[2007-10-09]  Kwacha rebounds
THE Kwacha has remained resilient against other major convertiable currencies despite increased liquidity on the market after the Bank of Zambia reduced Statutory Reserve Ratio requirements.

Citibank Zambia treasury manager, Ignatius Chicha said the Kwacha remained resilient in the face of increased Kwacha liquidity.

He said this gave an indication that the Kwacha bullish rally (getting stronger) was expected to last way into the fourth quarter.

Mr Chicha said the Kwacha had repeatedly failed to firmly break the K3,900 per United States dollar (US$) level and was likely headed for the K3,800 per US$ floor.

He however said the key factors in the last quarter would be the amount Government ministries had to spend before the end of the year and the Bank of Zambia’s (BoZ) preferred methods of sterilising the anticipated excess Kwacha liquidity.

Other factors would be yearly disbursements by non-governmental organisations, projects and cooperating partners.

On the BoZ’s reduced minimum statutory reserve ratios from 14 to eight per cent, Mr Chicha said this should lead to increased loanable funds in commercial banks and lower the interest rates in the economy.

He said the move was positive in the long term because corporate clients and personal consumers would be increasingly by banks looking for alternative higher yielding assets from Government securities.

Mr Chicha however noted that in the short term, there was likely to be an immediate drop in Government Securities yields as banks reinvest the monies into the assets.

He added that the instant drop was inevitable given the time lag it took banks to raise both consumers and corporate assets.

Mr Chichi also noted that the central bank and Government would have to look out for inflationary pressures from loose liquidity conditions, especially if consumers borrowed for consumption purpose.

”Our assessment is that the bulk of the credit expansion is expected to go towards productive activities. Financing of private household construction through mortgages is expected to rise significantly,” he said.

He said the impact of the reduction in statutory reserve ratios had already been experienced in the money markets were overnight rates have dropped from an average 14 per cent in September to 10 per cent as of end of first week of October, 2007.

Similarly, the Treasury bill yields have dropped by 1.5 percentage points in the last two auctions to an average 11.65 per cent.

“With annual inflation for September recorded at 9.3 per cent, we expect the downward pressure on the Treasury bill yields to continue and banks to revisit their base lending rates in line with the general level of interest rates in the economy”, he said.


Source: © 2005 Zambia Daily Mail.