Kwacha continues to slide, hits K595 to dollar

The kwacha has continued to slide against major foreign currencies, with a latest foreign exchange bureau rates report from Reserve Bank of Malawi (RBM) showing the dollar is being sold in cash at K595.

Analysts say this is probably a record low rate on the foreign exchange market in recent years.money

Such a steep fall in the value of the local unit against the dollar comes at a time both gross official reserves, under the direct control of RBM, and private sector reserves, under direct control of Authorised Dealer Banks (ADBs), continue to decline three weeks in a row.

For instance, RBM figures show that gross official reserves have dropped from $708.87 million or 3.39 months of import cover on August 14 2015 to $697.84 million or 3.34 months of import cover as of Friday last week.

On the other hand, private sector reserves also decline to $297.72 million or 1.42 months of import cover as of Friday last week from $312.64 million or 1.5 months of import cover on August 14 2015.

Monetary authorities say the reserves will continue to decline further as they “continue to support importation of strategic commodities in the market” such as fuel and fertiliser.

In terms of currency movement, RBM data show that as of last Thursday, August 27 2015, CLC Forex Bureau Limited was buying a dollar at K550 and selling it K595 at and the situation was the same with Golden Forex Bureau and Star Forex Bureau in Lilongwe.

Unlike forex bureaus, ADBs such as National Bank of Malawi (NBM), CDH Investment Bank and Indebank Limited were buying a dollar at K548 and selling at K562, according to published foreign exchange rates today

On the parallel market or black market in Lilongwe, dealers were buying a dollar at around K590 and selling the same at between K605 and K610.

RBM spokesperson Mbane Ngwira yesterday said the new foreign exchange market guidelines introduced by RBM towards the end of July this year are applying to ADBs in the meantime and not foreign exchange bureaus.

Among others, the new guidelines entail that the spread between buying and selling exchange rates shall not exceed K5 for all trading currencies at any point, which is currently the case with ADBs.

Ngwira also said foreign exchange bureaus mostly deal with cash as their main transaction type, which he said induces the cost of handling the cash by the bureaus, hence a huge spread between buying and selling rates.

“ADBs mostly use telegraphic transfers [TT] which is less costly than handling hard cash. Sometimes the spread [between buying and selling] is affected by the number of transactions that a bureau has conducted,” he explained.

The economy is currently facing pressure on the foreign exchange market largely due to speculation despite the country still selling tobacco, which wires in about 60 percent of the country’s foreign exchange earnings.

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