Zambia’s kwacha hits record low versus dollar as copper dips

LUSAKA (Reuters) – Zambia’s kwacha fell 3 percent against the dollar on Friday, reaching a record low, as it feels the effects of a drop in copper prices.

The country is Africa’s second-biggest copper producer, and copper prices broke below $5,000 a tonne on Friday, near six-year lows. Meanwhile, the dollar rallied on expectations the Federal Reserve will raise interest rates soon, for the first time in almost a decade.

The kwacha – which has halved in value against the dollar this year – slipped to 13.1700, its weakest level ever, before slightly paring losses to 13.100 per dollar by 1436 GMT.

Dwindling confidence in the economy was also putting pressure on the kwacha, said Maambo Hamaundu, a Lusaka-based independent analyst. Economic growth in Zambia will probably slow to 4.6 percent in 2015 because of weaker global activity and commodity prices.

Nor is the currency expected to recover soon.

“With the kwacha remaining exceptionally fragile and the government still far from enacting credible fiscal consolidation efforts, the risks of another leg of depreciation loom large,” said Gareth Brickman, analyst at ETM Analytics, referring to the country’s wide budget deficit.

Last month, Finance Minister Alexander Chikwanda said he planned to nearly halve the budget deficit in 2016, but added that the economy would face continued external challenges including weak commodity prices.