Bloomberg News

Sata Fires Zambia Central Bank Chief in Sign of Policy Shift

September 29, 2011

(Updates with new finance minister in fifth paragraph and economist’s comment in ninth.)

Sept. 29 (Bloomberg) -- Zambia’s central bank Governor Caleb Fundanga, who helped curb inflation to below 10 percent for the first time in 30 years, was fired by President Michael Sata in a sign the government may seek looser monetary policy.

Information Minister Given Lubinda confirmed in a phone interview from the capital, Lusaka, today that Fundanga was removed from his post. The Bank of Zambia declined to give further details, spokesman Kanguya Mayondi said in an e-mail.

Fundanga, 58, was head of the Bank of Zambia since 2002, winning awards for his fight against inflation. His removal may signal the government wants lower interest rates and a weaker currency in Africa’s biggest copper producer, said Leon Myburgh, sub-Saharan Africa strategist for Citigroup Inc.

The election manifesto of Sata’s Patriotic Front “indicated they believe interest rates are too high and the currency is too strong,” Myburgh said in a phone interview today. “There is a distinct possibility that the monetary policy framework may change.”

Sata defeated former President Rupiah Banda in the Sept. 20 vote on pledges to distribute more mineral wealth to citizens. He replaced former Finance Minister Situmbeko Musokotwane with businessman Alexander Chikwanda and named Wilbur Simusa, a lawmaker and geologist, as Mines Minister.

‘Remain Calm’

“Investors must remain calm, the mining companies included,” Lubinda said. “We want all those that had put on hold their investment plans to immediately resume their plans because this government will not harm them.”

The kwacha fell as much as 2.5 percent to 4,890 against the dollar today and was trading at 4,855 as of 2:08 p.m. in Lusaka.

Zambia has kept inflation in single digits this year while larger African economies such as Nigeria and Kenya have struggled to curb the effects of higher food and fuel prices. The inflation rate fell to 8.3 percent in August from 9 percent in the previous month, the statistics office said on Aug. 25.

“With Sata coming into office, he wants his own people in the various institutions,” Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital in Johannesburg, said in a phone interview today. “The question is whether he just wants somebody leaning towards his party or whether he actually wants to influence monetary policy.”

Zambia’s economy has benefited after most of its debt was canceled in 2006 and copper prices climbed. The country received its first credit rating in March when Standard & Poor’s and Fitch Ratings assigned it B+, four steps below investment grade. The government had said it plans to sell a $500 million Eurobond to help fund the construction of roads and power generation facilities.

--Editors: Nasreen Seria, Karl Maier

To contact the reporters on this story: Anthony Mukwita in Lusaka at amukwita1@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net; Andrew J. Barden at barden@bloomberg.net


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