Answer to Question #235456 in Macroeconomics for Marvin

Question

QUESTION ONE

Consider the quote below from BOZ (2021)

The expectations of the MPC with respect to the exchange rate have begun to materialise. Having come under immense pressure in 2020, owing to the weakening macro-economic environment, which was significantly exacerbated by the COVID 19 pandemic, the Kwacha has broadly stabilised in 2021. As at July 23, 2021, the year-to-date rate of depreciation of the Kwacha against the US dollar slowed down significantly to about 5.0 percent compared with almost 30.0 percent over the corresponding period in 2020. More recently, the Kwacha was trading at K21.39 on July 23, 2021 compared to K22.64 on July 1, 2021, representing an appreciation of 5.5 percent.

Required:

A. Discuss the factors that have caused the appreciation of the Kwacha using appropriate references. ​

Answer 1

The appreciation may be as a result of foreigners trying to recover on events which were disadvantaged in 2020. Due to COVID-19, it was hard for people to visit the country. There were some of the scheduled events which were already set during 2020 that had to be postponed to 2021 during the pandemic. Considering the fact that the 2021 events were never interfered, this has increased rate of exchange rate events in the country. Due to the high demand, Kwacha appreciated.