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Forex reserves rise, kwacha gains 10%

Malawi’s foreign exchange reserves buffer is still rising, with the country’s official gross reserves increasing to about 3.5 months of import cover last week. This development guarantees the country’s continued importation of essential goods and services.

On the back of the rising import cover, the kwacha has since December last year gained about 10 percent against the dollar, a situation, which if sustained, may further push down the cost of importing goods and services, including fuel.

DollarsReserve Bank of Malawi (RBM) figures show that gross official reserves—forex in the custody of central bank—increased to $662.51 million, an equivalent of 3.47 months of import cover last week, against a required minimum three months import cover.

The country roughly requires $191 million per month for imports.

However, private sector reserves decreased slightly last week to an equivalent 1.58 months of import cover, about $302.01 million, slightly below last year’s position during the same period.

In the wake of the improved forex reserves, the central bank has been buying forex from the market to beef up RBM’s buffer.

RBM’s Monetary Policy Committee (MPC) meeting last Wednesday noted that the increase in forex reserves since December last year was due to both purchases from the market and sale of government debt to external institutional investors, including the PTA Bank.

The government sold a $250 million debt to PTA Bank, which is equivalent to about 1.5 months of import cover.

The central bank also changed the Liquidity Reserve Requirement (LRR) on forex deposits under which commercial banks have to maintain the reserve requirement in local currency and in their respective currency denominations.

Along with the increase in official gross reserves, the local unit has also been appreciating against the dollar with the greenback officially selling at K462.31 on Friday last week, compared to K514.19 in December last year when the local currency turned the corner.

So far, the appreciation of the kwacha has impacted on fuel prices while the central bank believes that  inflation, which rose to 24.2 percent in December, will fall to around 15 percent by June 2015 on account of the appreciation of the kwacha and reductions in fuel prices.

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