Malawi kwacha slips against major currencies

The Malawi kwacha slipped against major trading foreign currencies—the dollar, the pound sterling and the euro—over the last four weeks, Reserve Bank of Malawi (RBM) official exchange rates indicate.

The central bank’s official figures indicate that the local unit retreated by three percent against the euro to the selling exchange rate at K462, down from K448.50, between August 23 and July 19.

The official exchange rates also indicate that the local unit depreciated by 3.5 percent against the pound to selling at K539.20 from K520.96 in the period under review.

The RBM figures indicate that the exchange rate which has been market determined since May 2012 after the historical 49 percent devaluation, slipped by about one percent against the dollar to selling at K345.86 on August 23.

However, the RBM official exchange rates indicate the kwacha appreciated by about 2.4 percent against the rand.

With the foreign exchange demand peak ahead, and tobacco, Malawi’s major foreign exchange earner marketing season almost closed, experts have warned that the kwacha may experience intense pressure from imports such as fertilisers.

However, other experts and key players, including Standard Bank Malawi Limited, one of the country’s biggest commercial banks has ruled out the possibility of the economy experiencing massive depreciation of the kwacha as the lean period draws closer.

Standard Bank Malawi director of global markets Frank Chantaya was quoted in The Nation saying the excess supply of dollars on the market will help the central bank to manage any likely excess in the demand for foreign exchange for the importation of fertiliser and other strategic imports at the height of the forthcoming season.

“We don’t see a massive depreciation of the kwacha beyond, but a stable depreciation. We expect the kwacha to be fully stable if anything a bit of depreciations, obviously,” said Chantaya.

The RBM report further indicates that official gross reserves declined from $464 million which is an equivalent of 2.47 months import cover on August 23, down from $488 million an equivalent of 2.59 months on July 17.

However, private sector foreign exchange reserves marginally rose to $303 million on August 21 to $293 million on July 17.

After the May 2012 49 percent historic devaluation and subsequent flotation, the kwacha depreciated by over 150 percent before stabilising in response to tobacco dollars and prudent monetary policies by the RBM.

During the plunge of the kwacha, prices of goods and services also followed suit with prices of fuel and other critical imports and consequently importing inflation which peaked at 37.9 percent in February.