Kwacha faces slight depreciation in April
The local currency, the kwacha, marginally weakened against all major convertibles in the month of April, despite foreign exchange reserves increasing during the month, Reserve Bank of Malawi (RBM) figures have shown.
According to Blantyre-based Nico Asset Managers Limited latest monthly economic brief, in the month of April 2015, the local currency depreciated by 0.3 percent against the dollar, 3.6 percent against the British pound, 5.1 percent against the South African Rand and 3.9 percent against the Euro.
Quoting RBM statistics, the firm says the kwacha closed the month of April at K444.41 against the dollar resulting in a year on year depreciation of the kwacha against the dollar of 11.3 percent in April 2015.
In April 2014, the kwacha closed at K399.19 per dollar, RBM figures show.
But the marginal depreciation in the value of the kwacha against major currencies seems to be defying the foreign exchange market.
The depreciation came at a time when the tobacco market opened during the month and specifically on April 8 2015, which has necessitated the trickling in of dollars on the market.
Tobacco still remains Malawi’s key foreign exchange generator, wiring in over 60 percent of all the country’s foreign exchange, annually.
The weakening in the value of the kwacha also comes deep into a month when total foreign reserves-gross official and private sector reserves-increased to $976 million or 5.11 months worth of import cover as at 30 April 2015 from $942 million or 4.93 months of import cover in March 2015.
Of the total reserves, $681 million (3.57 months of import cover) was the gross official reserves under the direct control of RBM and $295 million (1.54 months of import cover) was with the private sector.
“The exchange rate is expected to start appreciating as tobacco proceeds flow into the market,” says the firm.
It says the magnitude of the currency depreciation in 2015 may be impacted by the level of foreign currency reserves available after the tobacco season.
Currently, 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 as banks scramble for tobacco foreign exchange, according to our market analysis.
Economic commentator Edward Chilima told Business News that the slight appreciation of the local currency in April is temporary and is due to the fact that the economy is drifting from lean season to a season of abundant forex.
Malawi experiences significant seasonal volatility in its foreign exchange inflows, with earnings from the key tobacco export crop concentrated during a period between March to August.
