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Zambian currency downward slide to continue
Last Updated(Beijing Time):2012-11-01 21:09

Financial analysts in Zambia have said the local currency will continue to depreciate against major convertible currencies due to the absence of significant U.S. dollar inflow and increased local currency liquidity, financial analysts told Xinhua Thursday.

The Kwacha has been under pressure in recent weeks and slid to its lowest on Monday in more than four months, reflecting a wearing-off of the impact the law limiting the use of U.S. dollars in everyday transactions had on the local currency. In June this year, the government banned the use of the U.S. dollar in quoting prices of goods and services, a move aimed at controlling the inflow of currency exchange.

According to figures from major bureaus, the local currency is currently trading slightly over 5,300 Zambian Kwacha per 1 U.S. dollar from its July trading level of 4,790 Kwacha per 1 U.S. dollar.

"The fundamental reason for now is supply. The supply of the U. S. dollar is very restricted. Demand has outstripped supply and we are likely to see this continuing in coming months," Mambo Hamaundu, a financial analyst told Xinhua in an interview.

He further said the depreciation of the Kwacha is an indication that production levels in industries are still low to prop up the local currency, adding that the only solution is to ensure that the country goes on a vigorous industrialization program.

"Supply is backed by production and improvements in non- traditional exports. But this is currently low. Even the trade surpluses we have been recording in recent months is not sufficient to prop up the currency. It is a drop in the ocean," he said.

The analyst has expressed fears that the continued depreciation of the local currency could send prices of imported goods up as most of the goods in the country are imported, a situation that may trigger a rise in the prices of goods.

Meanwhile, financial analysts from one of the local commercial banks have indicated that the local currency is likely to be under pressure due to the absence of significant U.S. dollar inflows and increased local currency liquidity, according to local media.

The analysts in a statement released to local media said risk aversion on the international market due to protracted sovereign issues in Europe as well as lower domestic interest rates on government securities compared to other regions like East Africa had limited most offshore yield hunters' yield. According to the analysts, U.S. dollar inflows on the market had remained flat with most sellers staying out due to increased local currency liquidity.

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