Zambian Kwacha Overtakes South African Rand

ZimEye, October 17, 2022

The Zambian kwacha is now stronger than the South African rand.

At about 09:20 am on Friday, one Zambian kwacha was worth R1,15.

At the same time, the rand traded at R18.20 to one US dollar, after it took a beating at close on the previous day, due to the greenback strengthening on the back of an expected interest rate hike as US inflation remained elevated.

South Africa’s economy has been dealt blow after blow this year, while still recovering from the Covid-19 pandemic.

The South African Reserve Bank has been on an upward trend of raising interest rates, in an attempt to curb soaring inflation all year, with oil prices see-sawing for most of the year, as well as dealing with the energy crisis and rolling blackouts imposed by the state-owned ailing power utility, Eskom, just to name a few.

Yesterday, the rand breached the R18.50 mark. The annual inflation rate in the US slowed for the third month running to 8.2% in September, the lowest in seven months, compared with 8.3% in August, but above market forecasts of 8.1%.

As the latest US inflation print came in above expectations, investors feared this might fuel further hawkish rhetoric by US Federal Reserve officials to keep up with hefty rate increases.

This saw emerging markets currencies suffering losses in the financial markets yesterday, as the fears drove risk-averse investors to safer havens, with the dollar again approaching its highest levels in 20 years.

Meanwhile, Zambia’s kwacha gained 27% against the dollar this year, driven by the election of Hakainde Hichilema.

Investors have bet heavily on the new government of that country securing a bailout deal with the International Monetary Fund.

The rand had already been dealt a blow by Wednesday’s US Federal Open Market Committee minutes, which revealed the escalation in the hawkish tone last month when members increased their interest rate hike forecasts in a firm focus on lowering inflation.

Analysts said the rand was at risk of further losses now, as the South African Reserve Bank (SARB) would take a cue from the Fed and increase interest rates significantly at its last meeting for the year next month.

To date, the US Fed has hiked rates by 300 basis points, while the SARB’s rate-hike cycle has encapsulated 275 basis points since it began in November 2021.