Official, parallel market rate widens, Fimda blames pegging
Barely days after the Reserve Bank of Malawi (RBM) devalued the kwacha by 44 percent to address currency misalignment, the gap between the official and parallel (black) market rates has widened, it has been established.
Financial Market Dealers Association (Fimda) president Leslie Fatch said in an interview on Tuesday that this is as a result of the exchange rate not being responsive and will create another rift with the parallel market rate.
The devaluation, which followed the imbalances as well as mismatch in the exchange rate in cash and telegraphic transfer, saw the kwacha trading at K1 700 against the dollar in authorised dealer banks from K1 180.
However, Business News observation shows that the kwacha has also moved upwards on the parallel market from about K1 900 to K2 400 against the dollar.
Fatch said there is need for the exchange rate management system to ensure that forex pricing is flexible to allow the rate to respond to market forces.
He said: “That will help in avoiding similar disparities between the formal and parallel market.
“On the bigger picture though, a responsive exchange rate will ensure the kwacha finds its clearing levels basing on the underlying supply and demand forces at each moment.”
Meanwhile, the RBM last Friday announced new operational changes to the foreign exchange market where authorised dealer banks are permitted to freely negotiate exchange rates with the clients and among themselves, notwithstanding any limitations previously in place.
RBM also announced that the foreign exchange auctions will switch from the monthly cycle to every two weeks.
Speaking in an interview on Monday, Cross-border Traders Association of Malawi president Steve Yohane said most of their members source forex from the black market.
“It’s hard to do business in this miserable life and this is a time we need to think deeper as Malawi because our life most of the time depends on imports,” he said.
On Monday, Minister of Finance and Economic Affair Simplex Chithyola Banda said government will engage security agencies to crack down on illegal forex traders to prevent the externalisation and ensure that forex remains in the formal market
