LUSAKA (Reuters) - Zambia’s kwacha surrendered early gains against the dollar after opening stronger on Tuesday, following a 17 percent plunge on Monday to a record low triggered by a sharp slide in copper prices and a ratings downgrade.
The kwacha gained over 4 percent to trade at 12.0280 per dollar in early trade after the central bank intervened by selling dollars in the market, but later gave up gains to trade flat at 12.5400 by 0830 GMT.
“The central bank has been pumping dollars in the market to shore up a weakening kwacha,” Bwalya Mwanza, a forex trader at BancABC said.
Zambia’s currency went into freefall on Monday as prices for its copper exports hit a one-month low. It was further hampered by a rating downgrade from Moody’s.
“The selloff was a bit overdone and this is just a bit of a correction. It’s anyone’s guess how far the correction will go,” said Gerald Ndhlovu, a trader at First National Bank’s Lusaka division.
President Edgar Lungu’s special assistant for project implementation, Lucky Mulusa, said in a statement that a government department sourcing dollars from the market had also put pressure on the kwacha.
“This tends to cause shakes to the economy because usually the amounts siphoned out of the economy for the procurement of, for instance, fuel are huge,” Mulusa said.
“Road contracts which are in the hands of Chinese companies have also contributed to the shortage of foreign exchange in the country as most of the money paid to them is taken out of the country,” he said.
Zambia’s state Road Development Agency (RDA) on Sept. 21 awarded a $492 million contract to China Henan International Cooperation to construct and repair roads in Africa’s second-largest copper producer.