Reserve Bank sees continued kwacha stability

The Reserve Bank of Malawi (RBM) has expressed confidence that the kwacha and the exchange rate will remain stable in the short to medium-term.

RBM spokesperson Mbane Ngwira said this in the context of the disbursement on Friday of $84.3 million (K62 billion) by the World Bank in budget support.

Besides this, the central bank has also enhanced its open market operations by mopping up excess liquidity on the market.

For the past 12 months, the kwacha largely remained stable against major foreign currencies due to what authorities say is fiscal discipline and efforts by the RBM to absorb excess liquidity from the banking system as well as maintenance of positive real interest rates.

According to the central bank, this is the longest period the kwacha has been allowed to find its international value in line with market forces of demand and supply.

In an interview on Monday, RBM spokesperson Mbane Ngwira noted the country’s reserves have, on the other hand, been above three months of import cover largely due to earnings from other export commodities such as sugar, tea, coffee and pulses.

This situation does not only support foreign exchange build up, but also helps to consolidate confidence of the private sector to invest for growth.

“For a while now, the central bank has observed that demand for foreign exchange in the market has been matched by supply and that the market is able to clear. The disbursement of budget support, therefore, comes at the right time,” he said.

Ngwira is confident that in the foreseeable future, Malawi is not likely to experience the usual seasonal lean period in terms of foreign exchange availability, thereby cementing the current stability of the exchange rate.

Analysts think a healthy reserves position is good for the economy because any shock resulting from lower tobacco proceeds is being absorbed with little or no impact on the foreign exchange markets, an indication that the economy has developed resilience.

In an earlier interview, economic analyst, Cosmas Chigwe, said looking at the past two years, tobacco has had little impact on the exchange.

The kwacha depreciated  by five percent during the lean season last year, and the analyst said, the central bank’s efforts are helping to prop up the currency.

Traditionally, tobacco has been known to contribute 60 percent of foreign exchange earnings, but that seems not to be the case now. n