3  Preliminary estimates. 4  BIS central bankers’ speeches  Foreign exchange market 31. The Kwacha was firm against major traded currencies, backed by consolidation of macroeconomic gains and improved liquidity in the foreign exchange market. A sustained increase in the international price of copper to an average of US $ per ton provided further support to the local currency. Thus, the Kwacha appreciated by 2.1% against the US dollar to an average of $ at the end of the fourth quarter. 32. The Kwacha also appreciated by 2.4% against the pound sterling to an average of £ and by 1.1% against the euro to an average of € These gains were partially attributed to the lingering European debt crisis despite the bailouts extended to Ireland and Greece. In contrast, the Kwacha depreciated by 2.0% against the rand to an average of K691.22/ZAR. The South African currency was broadly stronger on account of higher price of gold and lower policy uncertainty after the Government clarified speculation on privatisation of public enterprises. 33. In terms of volume of transactions, commercial banks made spot purchases of US $ million from the non-bank public against sales of US $ million. This translated into net purchases of US $ million in the fourth quarter. Commercial banks also made net euro and pound sterling purchases € million ₤0.3 million, respectively. However, banks recorded net sales of ZAR853.1 million in the fourth quarter, underpinning the continued demand for the South African rand. 34.
During the same period, the net income account deficit widened by 3.2% to US $ million from US $ million in the third quarter. This was largely on account of an increase in income on equity payments and interest payments. The current account transfers, increased to US $ million from US $ million recorded the previous quarter, explained by the disbursement of budget grants amounting to US $ million. 43. The capital and financial account deficit widened to US $ million from US $ million recorded in the third quarter. This was largely due to the unfavourable performance of the financial account arising from a surge in short-term deposits abroad by the private sector, despite the increase in foreign direct investment. Developments in the financial sector 44. The overall financial condition of the banking sector for the quarter ended December 2010 was satisfactory. On aggregate, the banking sector’s capital position, asset quality and liquidity were satisfactory. However, the earnings performance of the sector declined largely on account of an increase in the non-interest expenses (due to increases in staff emoluments, reorganization costs and additional tax provisions). 45. Overall financial condition and performance of the Non-Bank Financial Institutions sector was rated fair during the quarter under review. The sector was adequately capitalised with “fair” asset quality, while earnings performance was rated “satisfactory”. 46. As part of the overall objective to enhance financial inclusion, the BoZ undertook provincial sensitisation tours on savings and credit covering all the nine provinces of Zambia.