Kwacha lift narrows risk premia
Kwacha strength eases inflation and curves, but breadth of FX supply and power-sector reform will decide durability. Copper remains the hinge. (HG=F, DXY)
An appreciating kwacha has eased headline pressures and lifted market tone, but the underlying supports remain narrow. The exchange’s leadership points to a ~7–8% one-month gain and mid-teens appreciation over 12 months, aided by improved hard-currency inflows and tighter monetary settings. The valuation reset lowers imported inflation pass-through and trims the government’s local-currency debt-service path.
Yet FX liquidity is still sensitive to copper receipts, disbursement timing, and portfolio flows; without broadening non-traditional exports and deepening the interbank market, the currency’s gains risk episodic reversals. With the domestic yield curve still elevated, banks’ preference for government paper crowds out private credit; only steady disinflation and credible issuance calendars will compress term premia sufficiently to reactivate lending.
For equity investors, the currency stabilisation improves the translation of local earnings, but the earnings cycle is linked to mining capex and power availability. The policy watchlist: debt-restructuring implementation milestones, central-bank reserve accumulation pace, and progress on electricity-tariff reform to restore balance-sheet health in the power sector.
If those align, real rates can trend down from restrictive levels and support private demand. Over a 3–6 month horizon, the base case is for lower monthly CPI prints, gradual curve bull-flattening, and an FX range trade contingent on copper. Upside risks include faster-than-expected mine ramp-ups and concessional disbursements; downside risks revolve around power constraints and a softer copper tape.
