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.
Along 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.