EIU predicts Malawi kwacha to trade at K422 in 2014

The Economist Intelligence Unit (EIU) has forecast that the local currency, the kwacha, would average K422.78 against the United States Dollar in 2014.

The forecast by EIU—an independent business within the Economist Group which provides forecasting and advisory services through research and analysis—is contained in the July, 2014 monthly economic report by Blantyre-based Nico Asset Managers Limited.

Meanwhile, EIU has also forecast that the kwacha would hit K472 to the dollar come December, 2014, according to the report.

Last year, the local currency averaged K364.41 to the dollar, says the report.

The Reserve Bank of Malawi (RBM) has since said there is a lot that goes into exchange rate determination hence could not comment much on the ‘speculation.’

“But we are happy that we have managed to stabilise the currency,” said RBM spokesperson Mbane Ngwira in an interview yesterday.

RBM has been controlling the movement of the currency to create stability by buying foreign currency from the market.

Currently, the kwacha has stabilised to around K380 in most authorised dealer banks which is an appreciation from a rate of K435 in December last year.

But a Lilongwe-based banker, who opted for anonymity, yesterday agreed with the forecast by EIU pointing to a weaker kwacha for the rest of the year saying the exchange rate may start to depreciate as the tobacco season will be coming to a close in a few weeks time.

Said the banker: “It is right to say that the economy may be in precarious situation once the tobacco market shuts up due to the over-reliance on tobacco in generating foreign exchange. And again let’s not forget that donors also continue to withhold budget aid which is also an important source of foreign exchange. I can’t rule out a sharp depreciation soon.”

Usually, a depreciating exchange rate makes imports more expensive and often triggers cost push inflation, a type of inflation caused by extensive increases in the cost of basic goods or services.

But on one hand, a weak kwacha would be a fortune to exporters as their exports consignment become competitive by earning relative higher revenue.

According to Nico Asset Managers Limited, overall the kwacha will depreciate in the medium to long-term due to trade imbalances, current account deficits, low forex reserves and significant levels of imports.