Malawi’s gross foreign exchange reserves, official and private sector combined, dropped by about 14 percent to 3.86 months of import cover last week regardless of the ongoing tobacco sales, available figures have shown.
Reserve Bank of Malawi (RBM) figures indicate that official forex reserves dropped to an equivalent 2.36 months on April 18 from 2.56 months of import cover the previous week while private sector reserves dropped to 1.5 months from 1.92 months of import cover during the same period.
Malawi’s import cover is calculated based on a demand of $188.1 million per month while private sector reserves include Foreign Currency Denominated Accounts (FCDAs) and Authorised Dealer Banks (ADBs) own forex positions, according to the central bank.
The tobacco marketing season which opened on March 24, has in the first three weeks ending April 11 raked in $20.8 million, about 71 percent above what was earned n the same period last year.
Due to the improved availability of forex, the RBM has been buying hard cash from the market which has seen official reserves generally increase over the last few months.
The recent International Monetary Fund (IMF) mission welcomed the accumulation of international reserves by the RBM and its plans to further boost the level of reserves during this year’s tobacco season to provide the economy with a buffer against exogenous shocks.
The IMF noted that this will also allow the RBM to effectively intervene in the foreign exchange market to manage excessive volatility in the exchange rate, arising from the highly seasonal pattern of private foreign exchange inflows.
However, the IMF cautioned the central bank against the country’s high liquidity levels which is as a result of the RBM forex purchases which it noted may frustrate the fall of inflation currently at 24 percent as of March 2014, according to the National Statistical Office (NSO).
But RBM spokesperson Mbane Ngwira said their policy of forex purchases is guided by both smoothening the fluctuation of the kwacha exchange rate and reining in inflation.
He pointed out that to ensure that liquidity levels do not destabilise inflation fall, the central bank will mop up excess liquidity by rolling over maturing securities in addition to issuing new securities.