As the lean season in foreign exchange availability approaches, the Reserve Bank of Malawi (RBM) has assured Malawians that it has put in place measures to guard against the steep depreciation of the kwacha experienced last year.
Analysts expect the local unit, devalued by 49 percent in May 2012 and let free to be market determined, to be under extreme pressure largely due to the anticipated procurement of agricultural inputs such as fertiliser which consumes a considerable amount of foreign exchange.
But RBM Governor Charles Chuka in an interview said the central bank will ensure that the economy does not “go back to the kind of fluctuation that we saw last year”.
“As we go into the lean season [September and October], the kwacha will probably move up and down. That does not mean that the economy or the kwacha has become bad, it just means business people are pricing the kwacha in terms of its availability.
“If there is less available dollars, the kwacha will move [and] that is what currencies do all over the world. So, it is not strange, it is not news. It should be something that you have to understand as normal, it happens all over the world,” he said.
Since the local unit was devalued last year, it went on a free-fall hitting K420 to a dollar, but started picking up when tobacco dollars started trickling in April exciting fiscal and monetary authorities.
Already, the kwacha has shown some signs of weakening over the past four week, having slipped against major currencies, the dollar, pound sterling and the euro, according to RBM official exchange rate figures.
Figures show that kwacha slipped one percent against the dollar and is now trading at around K345, the euro is trading at K462 down from K448 between July 19 and August 23 whereas the pound is now selling at K539 from K520 in the review period.
Conversely, the local unit appreciated by 2.4 percent against the rand which is good news particularly for business operators who go to South Africa.
But Chuka said monetary authorities have proved that when the kwacha is determined by market forces, foreign exchange is available and that it will continue to be available in the times to come.
He stressed that what is important is that the local unit should reflect market forces, saying when the tobacco sales kicked in, coupled with a tight monetary policy stance, the kwacha appreciated.
“Be assured that the kwacha reflects the real price, so are we encouraging exports, so shall we see more and more. That is what we all are aiming at,” he said.
Last week, Standard Bank Malawi director of global markets Frank Chantaya ruled out the possibility of the economy experiencing massive depreciation of the kwacha, saying they expect excess supply of dollars on the market.
But he said the challenge will be for monetary authorities to manage the excess demand of the hard cash for the importation of critical imports.
“We don’t see massive depreciation [of the kwacha] beyond, but a stable depreciation. We expect the kwacha to be fully stable and, if anything, a bit of depreciations, obviously, but not as steep as it was,” he said.
The steep depreciation of the kwacha last year hit the economy hard pushing inflation to a record high of about 37 percent, heightening the cost of living with interest hovering above 40 percent choking the survival of businesses.