Zambia's kwacha staged a comeback on Tuesday after the central bank raised the amount of funds that commercial lenders must deposit at the institution.
The currency of Africa's second-biggest copper producer climbed 6.2% to 14.3750 per dollar by 5:20 p.m. in Lusaka, the capital. By Monday, the kwacha had lost more than a fifth of its value against the dollar this year and had fallen to a record low, threatening to add to pressure on inflation that's already at 10.8%.
The Bank of Zambia responded by raising the reserve ratio for commercial lenders to 9% from 5%, effective Dec. 23. It had already raised its key lending rate by the most since 2015 in the past month, and increased the costs of overnight lending in a bid to stop the kwacha's slide.
Foreign exchange reserves near the lowest in a decade mean the bank is constrained from selling dollars to bolster its currency.
Still, the central bank's efforts to support the currency “will have to be short-term given the tighter liquidity conditions,” Johannesburg-based FirstRand Ltd.'s RMB said in a note.
Zambia's economic expansion is already forecast to be less than 2% this year, the lowest in more than two decades, and less than population growth. Higher interest rates and reserve ratios may curb borrowing by the private sector, hurting growth further.
--With assistance from Taonga Clifford Mitimingi.
To contact the reporter on this story: Matthew Hill in Maputo at mhill58@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Gordon Bell, Paul Richardson
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