Zambia’s Kwacha Emerges as the Top-Performing African Currency Against the U.S. dollar

Zambia’s kwacha has emerged as the top-performing African currency against the U.S. dollar in 2024, surging by 13.8% to 22.8 against the dollar, according to LSEG data. This remarkable performance is attributed to the central bank’s aggressive monetary policy tightening.

Central Bank Measures:

To counter the currency’s decline and rising inflation, the central bank implemented measures such as raising commercial banks’ reserve ratios and increasing interest rates.

Last November, the apex bank raised the statutory reserve ratio for deposits in both local and foreign currencies by 3 percentage points to 14.5%.

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Analysts’ Insights:

Analysts emphasize that the kwacha’s sustained strengthening hinges on Zambia’s ability to attract more foreign investment. Danny Greef, Co-Head of Africa at research firm ETM Analytics, remarked, “The kwacha’s performance this year has been remarkable.”

Challenges and Solutions:

Zambia’s prolonged debt restructuring, now in its fourth year, has hindered foreign investment and contributed to the kwacha’s weakening.

Despite government initiatives to boost the sector, copper production, a crucial source of foreign exchange for Zambia, has declined.

Bank of Zambia governor Denny Kalyalya stated at a public forum, “The measures that we have taken… are meant to stem some of the demand, which we thought was excessive as we anticipate supply, which mainly comes from the mining sector.”

Future Outlook:

While the kwacha has weakened slightly this week to 22.5 to $1, it remains more than 20% stronger than the record low of 27.23 reached on February 6.

Economist Munyumba Mutwale expects an adjustment that will stabilize around 21-22 per dollar, noting that increased foreign currency flows are necessary for the kwacha to make further gains.

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Investment Initiatives:

The government is finalizing arrangements for new investors to take over Mopani and Konkola Copper Mines, while companies like KoBold Metals are undertaking exploration with commitments to fund new projects.

In conclusion, Zambia’s kwacha has demonstrated resilience and strength in 2024, outperforming other African currencies against the dollar.

The central bank’s decisive measures, coupled with efforts to attract foreign investment and revive key sectors like copper production, are key factors driving this positive trend