Import cover drop temporary—RBM
The Reserve Bank of Malawi (RBM) has said the current drop in the gross foreign exchange reserves–a combination of official and private sector reserves–is temporary and will not have an impact on the country’s exchange rate.
Latest Reserve Bank of Malawi (RBM) figures show that the reserves in the custody of both the central bank and the private sector dropped by $30.02 million from $999.15 million (4.78 months of import) in October to $969.13 million, equivalent to 4.66 import cover in November.
As of Tuesday last week, the Daily Financial Market Development report showed that the gross official reserves in the custody of the bank are standing at $631.21 million ( equivalent of3.04 import cover) down from $669.92 million(equivalent of 3.20 months of import) while the Private Sector has a total of $337.92 million equivalent to 1.62 months of imports for November from $329.23(1.58) in October.
But RBM spokesperson Mbane Ngwira said the central bank is optimistic that the reserves will not go below the internationally accepted three months import cover.
“We will not go below the three months as we expect that it will be recovered soon and it will not even affect the exchange rate,” he explained.
Commenting on the same, Old Mutual Investment Group head of listed investments Cuthbert Mnyenyembe said as a net importing country, the drop in the import cover is expected, especially during this lean period as the country predominantly relies on tobacco sales as a main foreign currency earner.
He said the drop, therefore, in gross official reserves from 3.61 in August 2018 to 3.04 in November 2018 confirms that the authorities are partly selling the currency to the market to cushion the kwacha from steep depreciation.
“It should be noted that such interventions are necessary if the targeted inflation rate is to be met as it is based on a certain prevailing exchange rate envisaged in the forecasts. The balance between maintaining gross import cover at a minimum of three months and supporting stability of the kwacha is always a delicate one,” said Mnyenyembe.
