Business NewsEditors Pick

Forex shortage persists—RBM

The Reserve Bank of Malawi (RBM) says the foreign exchange market continues to experience supply shortages with the situation being exacerbated by the Covid-19 pandemic.

Speaking during the official opening of the Institute of Chartered Accountants in Malawi (Icam) Annual Lakeshore Conference in Mangochi on Thursday, RBM Governor Wilson Banda said the central bank is committed to maintaining exchange rate flexibility to help absorb external shocks.

The country’s has been hit with forex shortage

He said: “It is disheartening that as we are trying our level best to properly utilise the dwindling resources we have, we see in some other quarters the very same resources are abused at the expense of millions of fellow citizens.

“We cannot maintain the ostrich approach on matters that are affecting us. We have to face the hurdles head on and more especially during these tough times when the resources are even scarce.”

RBM figures show that from June 2020 to October 2020, the local unit has depreciated by 2.2 percent to K759.47 per dollar as of end October 2020 from K743.05 in June 2020.

To limit the impact of the Covid-19 pandemic on the economy, the central bank implemented a number of policies in the financial sector.

On Friday, November 6, the central bank reduced the policy rate—the rate at which commercial banks borrow from the central bank as the lender of last resort—to 12 percent from 13.5 percent to support economic recovery.

In April 2020, the domestic currency Liquidity Reserve Requirement (LRR) was reduced by 125 basis points to 3.75 percent, aligned with the foreign currency LRR, and the Lombard Rate was reduced by 50 percent to 0.2 percentage points above the policy rate.

Banda said financial sector buffers, including banks’ capital and liquidity buffers are expected to counter risks in the banking system with all banks reporting liquidity above the regulatory minimum benchmark.

He said: “The banking industry remained well capitalised with aggregate core capital ratio of 17.6 percent and total capital ratio of 20.6 percent as at end September 2020 above the prudential benchmarks of 10 percent and 15 percent, respectively.”

In his remarks, Icam president Bwighane Mwenelupembe said the reduction in the policy rate and the release of the local currency puts considerable pressure on the exchange rate, particularly during the lean period.

While applauding the central bank for introducing a reference rate system, he said the system means that more liquidity is being released into the market, which results in more borrowing.

Said Mwenelupembe: “This comes at a time government is purchasing fertiliser for the farm input subsidy. As a result, there is pressure on the exchange rate.

“Just at relatively above three months of import cover entails that our reserves can be wiped out easily in case of some shocking aspects that may rattle the economy. To start breathing comfortably, we have to aim at building more reserves and have an import cover of six months and more.”

The three-day conference, held under the theme Prudent Financial Management: Key to Business Resilience in the Midst of Covid-19.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button