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Kwacha hits worst point, may trade at K525 by Dec

The kwacha hit its lowest point to the dollar since 2012 on Monday, with the middle rate falling to about K440 compared to about K430, the worst position last year, Reserve Bank of Malawi (RBM) figures show.

Analysts have said this is a hurricane and have called upon authorities to act to avert serious danger, projecting that the local unit may hit K525 to the dollar by December this year from Monday’s authorised dealer banks (ADBs) average selling price of K460.

graphAlong with the kwacha fall, the country’s forex reserves are getting thinner. At about 2.31 months of import cover on October 10, official reserves were slightly higher than last year, same period, while private sector reserves at 1.6 months were below the previous year’s position.

With tobacco sales closed and the country’s second largest source of forex—budgetary support—in limbo, the sharp fall and thinning of forex reserves signal rapid pressure on the local currency.

A treasury manager at one of the major commercial banks who asked for anonymity in an interview on Tuesday, said they had earlier projected the kwacha to fall to K500 by December this year, but adjusted the projections to K525.

“The main factors behind the fall of the kwacha include the closure of the tobacco marketing season and the withholding of donor aid. Although there are no forex inflows at the moment the demand for the dollar is still there and that is why the kwacha is declining so fast,” said the manager.

The manager further pointed out that there is very little that the country can do because the economy is liberalised but hoped that RBM would start to offload forex into the market to arrest the fall.

In a telephone interview on Tuesday, Consumer Association of Malawi (Cama) executive director John Kapito said the fall of the kwacha has serious implications for local consumers and drastic implications for the country.

“Due to the fall of the kwacha, there will certainly be price increases in basic goods and services. The cost of living will be unbearable while employees will be asking for higher wages. This is not a situation to watch, someone has to tell us what exactly is happening,” said Kapito.

But Ministry of Finance, Economic Planning and Development spokesperson Nations Msowoya, in a telephone interview on Tuesday, said they are working on some projects which may trigger disbursements.

“We are expecting aid from the European Union [EU], the World Bank and the African Development Bank towards the end of this financial year,” said Msowoya.

Earlier, RBM spokesperson Mbane Ngwira said they will use both supply and demand side measures—sell forex, control money supply—to intervene on the market.

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7 Comments

  1. @vyoto, do not think with federalism mentallity. Have you read the article yourself? is it too hard for you to understand it? is it possible for you to find someone who can explain it to you? I believe all information os needed in this article for you to answer your question

  2. Fasten your belts fellow Malawians, coz the worst is yet to come. These are the fruits of the DPP Mulahko led govt. Vote with your heads in the next general election and not with your hearts as you have been doing in the past.

    Everyone in Malawi knew very well that the donor community would never trust the Mulahko led govt. but yet people in the south despite harbouring some of the poorest districts in the country still voted for APM just becoz he is from the south, what a shame.

    Yes I agree that Malawi need to stand on its own without donors but that’s a lie if we think we can do that just over night after failing to develop for the past 20 years even with donors on board.

    Malawi will leap the fruits of nepotism in the next 4 years and who knows maybe for the next 10 years if APM wins again in 2019. And looking at the way APM is playing his divide and rule politics with the family from Kapoloma village already bought like goats, I have no doubt in my mind that come 2019 elections APM would be in the driving sit again.

    1. Wrong packing. You may hate the Mutharikas or the Lhomwe but this issue has nothing to do with that. Malawians should learnt to be decent and respectful to each other. Dont behave like brutes and barbarians.

  3. Can we, for once take politics out of this technical aspect of the economy, please. We have experienced tjis kind of trend for the past 20 years. The problem is that we have not devised policies that should create more production on the ground. FOR ME I WILL NEVER STOP TO ARGUE FOR SELF DEPENDENCY. It is deflating to hear Mr Nation Msowoya depending on donor behaviour to get a better macroeconomic environment. I urge Dr Mangani and colleagues to seriously consider two things. First, lets support all business and entrepreneurial activities that will set up factories to produce within the country. Secondly, lets have more campaigns supported by “do-as-do” attitude from top government officials. I want to repeat that the leadership which will be proud to be using goods and services made in Malawi will have my vote and that of the entire Tchereni clan!!!

  4. I love how the comments blame government for not kneeling to donors, because right now its only the international organisations that are supplying FX to the market and keep demanding a higher price for it thur driving up exchange rates. Its the same donors that are driving the currency up because of greed and the desire to keep Malawi down so they can create more work for themselves. Should the DPP led government fix the Kwacha again and reverse the policies the PP regime were praised for? Please educate yourselves before you spread your ignorant views in public, beacuse this is economics 101 and nothing to do with the actions of any politicians, just greedy speculators!

  5. The economic fundamentals of Malawi are wrong. Fiscal policy is directionless and at loggerheads with monetary policy. Monetary policy itself very wield, belonging to the 70s of high interest rates. The national political landscape filled with the same tired policies of anchoring the economy on Agriculture – a direct hood wink from the old colonial masters based on the 1750 Iron Act paradigm that has softly but firmly stopped Malawi (mentally ) from entering the Iron Age and hence wealth creation. A nation completely enveloped and engulfed by the jaws of the IMF economic world order which rewards exports and punishes imports – a trance state that has tranquilised Malawi into a blissful stance of economic stagnation masquerading as stability. Donor community bent on maintaining the poverty status quo of Malawians – masquerading as helpers while softly but firmly pointing Malawi in the wrong direction – towards the poverty dumpster. I am not inspired by any one who advocates independence from donors without practical strategy for expanding the industrial production output. Hope is not a strategy. Malawian Intellectuals Discuss!!!

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