Malawi central bank arrests kwacha steep gain

The Reserve Bank of Malawi (RBM) says it has effectively arrested the steep appreciation of the kwacha but has also attributed the slowdown to last week’s tripartite elections.

In a telephone interview on Tuesday, RBM spokesperson Mbane Ngwira said their foreign exchange market intervention and the current monetary policy have so far been effective.

“We have been buying foreign exchange from the market to ensure that the kwacha does not appreciate heavily which would lead to a heavy depreciation later during the lean period,” said Ngwira.

According to RBM statistics, the local unit gained by about seven percent from K449.11 to K417.52 between January 3 and April 14. The appreciation has however slowed down for the past weeks with the local unit hovering just above K410 to the dollar.

However, the central bank has said it will ensure stability of the local currency through forex operations which experts, including the International Monetary Fund (IMF) have warned may increase market liquidity and consequently risk a rise in inflation.

But earlier Ngwira said that the central bank cannot stop forex operations which are aimed to control the kwacha appreciation which he noted if left unchecked can hit K300 to the dollar.

The RBM has been buying forex from the market taking advantage of the recent improvement in its availability due to tobacco sales which has seen international reserves rise.

During the interview on Tuesday, Ngwira said although the central bank intervention is bearing fruit he noted that the pre-election economic slowdown also had an impact on the appreciation of the local currency.

But regardless of recent effectiveness of RBM’s policy analysts have doubted the sustainability of the strategy in the long run especially during the lean period.

A Blantyre-based analyst in an e-mail on Tuesday argued that based on what happened last year the RBM’s forex market interventions will not likely uphold the stability of the kwacha.

He noted that regardless of the relatively high forex reserves last year, the kwacha depreciated steeply during last year’s third and fourth quarters.

But Ngwira argued that although the central bank had relatively high forex reserves last year the RBM’s policy stance did not provide for market intervention through forex sales.

He further noted that this year the bank will be able to stabilise the kwacha because it will intervene in the forex market by injecting more forex into the market.