Commercial banks are competing to buy foreign exchange earnings from tobacco, a situation which has led to a marginal depreciation of the local unit, the kwacha, against some major convertibles,Business News has learnt.
From the onset of the 2015 tobacco marketing season on April 8, there has been competitive official buying rates for most Authorised Dealer Banks (ADBs), while at the same time official selling rates have remained almost static, according to our analysis.
The situation has seen ADBs buying dollars from the market at different competitive rates to accumulate more foreign exchange, in the process narrowing their profit margins in foreign exchange business.
Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira confirmed the development in an interview Tuesday, and observed that while buying rates have been varying from one bank to another, the selling rate have remained almost unchanged.
“This is just a business strategy among banks which has seen banks themselves competing for forex from tobacco,” said Ngwira.
While selling rates have remained unchanged at around K450 to the dollar, the banks are willing to buy a unit of a dollar at varying rates ranging from K425 and K435, according to our observation.
According to published foreign exchange rates on Tuesday, Ecobank was selling a dollar at K449 and was buying the same at K432.
In contrast, NBS Bank bought a dollar at K428, while selling the same at K449.
Indebank was buying a dollar at K426 and sold the unit at K449.
Ngwira, however, dismissed fears that the currency has started to depreciate against the dollar as was the case towards the end of last year.
The kwacha depreciated by 20 percent against the US Dollar in late 2014 during the traditional “lean foreign exchange” season.
Malawi experiences significant seasonal volatility in its foreign exchange inflows, with earnings from the key tobacco export crop concentrated during the March to August period.
In contrast, key import requirements, such as fertiliser procured for the Farm Input Subsidy Program (Fisp), are sourced during October-December.
This leads to a cyclical pattern of upward pressure on the kwacha during the tobacco earnings season, followed by downward pressure during the lean season.
Economic commentator Edward Chilima said Tuesday that the slight appreciation of the local currency is temporally and is due to the fact that the economy is drifting from the lean season “to a season of abundance.”
“As it is now, we have not felt the impact of tobacco forex yet that is coming on the tobacco market. So this is a temporary depreciation and as supply of foreign exchange from tobacco increases, the currency will start to [appreciate again]. This should not be a cause for panic,” he said. n