Zambia attempts to prop up kwacha

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Lusaka - Investors are awaiting evidence that Zambia’s efforts to shore up its currency will succeed as the government starts marketing a Eurobond, sub-Saharan Africa’s first sovereign international debt sale this year.

The kwacha, which slid to a record 6.44 (about R11) a dollar on March 19, has extended its losses by 4.2 percent since Zambian policymakers scrapped laws to ease dollar shortages and took steps to reduce liquidity in the banking system. The kwacha has fallen 13 percent against the dollar this year, the worst performer of 24 African currencies monitored.

The central bank, led by governor Michael Gondwe, meets to decide on interest rates today after boosting the benchmark to a record 10.25 percent last month to support the currency and tame inflation, which accelerated for the fifth consecutive month this month.

The nation, which sold Eurobonds in September 2012 with yields reaching 5.16 percent that month, might pay as much as 9 percent to sell debt amid lower copper prices and a fiscal deficit, Chris Becker at ETM Analytics said.

“They’re going to be trying to market the bonds on the back foot,” he said on Wednesday. “It’s a risky one. They’re going to pay up.”

Yields on Zambia’s dollar securities, which rose to a record 8.33 percent last week, fell 4 basis points to 7.84 percent yesterday. The notes have lost 3.4 percent so far this year, the continent’s worst-performing dollar debt after Ghana, according to Bank of America Merrill Lynch indexes.

The landlocked nation said in October it might issue as much as $1 billion (R10.6bn) of Eurobonds, hiring Deutsche Bank and Barclays in January to lead the sale. The issuance will be the first since the US Federal Reserve cut its bond-purchase programme. Ghana, which planned to sell its third Eurobond next month, delayed the programme because of rising interest rates. – Bloomberg

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