The Zambian Kwacha Has Been Taking A Beating

Kwacha before the currency was debasedREUTERS/Mackson WasamunuThe Zambian kwacha before it was re-based.

The Zambian kwacha has been falling for several months as the Federal Reserve’s tapering of its asset purchase program has caused the dollar to strengthen, roiling currencies in emerging markets.

More recently however,

the blow to copper prices has weighed on the kwacha as well, as Zambia is Africa’s largest copper producer.

Copper prices have been getting shredded on concerns over China, as “the appeal of commodity trade-related financing deals in China appears to be waning,” writes Caroline Bain of Capital Economics in a note to clients.

In February, the Bank of Zambia called an emergency meeting as the kwacha hit a record low.

Since then, the central bank has raised its benchmark policy rate by 50 basis points to 10.25% in order to stem the decline in the kwacha and to curb inflation.

Yet the kwacha continues to weaken. This one-year chart shows how the dollar has strengthened against the kwacha — it’s up about 7.2% in the year to date.

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