STANDARD Chartered Bank has projected that the kwacha will in the short term trade below K5, 100 against the US dollar due to expected inflows ahead of mineral royalty payments.
However, the bank warned that oil procurement related demand will continue to pose some pressures on the local currency, which has depreciated rapidly in the last six months and has been trading in the range of K5, 300 against the US dollar.
According to market data released by the bank, the kwacha closed last week on a firm note at K5, 250 -K5, 270 per US dollar.
"The market was even with enough inflows from the mines to meet demand mainly from the telecom and manufacturing sectors. The Interbank appears to have consolidated around K5, 250," it stated.
"The break lower is imminent with initial target of K5,220 below which could pave way for K5, 170, with key market movers remains mining inflows ahead of mineral royalty payments while oil related demand will continue to pose some pressures on the local unit."
Last week, Bank of Zambia attributed the depreciation of the kwacha to uncertainties associated with external factors relating to unfavourable global economic prospects.
"Developments in the euro zone crisis have triggered widespread concerns and uncertainty about the global economy amongst investors. Even though Greece has continued to make other progress towards resolving its sovereign debt issues, investors have remained cautious," stated BoZ's head of public relations, Kanguya Mayondi.
"In light of these developments, BoZ has provided liquidity support to the market amounting to US $132.5 million since the beginning of 2012. This action is aimed at dampening volatility in the exchange rate. However, it is expected that with the resolution of the euro debt crisis, global growth prospects may be rekindled and hence benefit risk aversion prone currencies including the kwacha."
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