RBM forex purchases from banks decline
Sale of forex to the Reserve Bank of Malawi (RBM) has declined, an indication that its demand is picking up on the market or that liquidity has improved, the central bank’s daily money market reports indicate.
RBM’s daily money market reports indicate that from July 6 to July 24 there were no foreign exchange transactions with the bank of last resort except when K561 million (about $1.4m) was sold to RBM.
However, in May and June—at the peak of the tobacco marketing season and when liquidity was relatively tight—commercial banks were selling to RBM forex on almost a daily basis to offload excess forex and ease their liquidity.
RBM spokesperson Mbane Ngwira in a telephone interview on Thursday noted that commercial banks come to RBM to transact on forex as a last resort.
“Commercial banks were selling foreign exchange to RBM because they needed the kwacha. Others were selling the forex to RBM because they had reached their 35 percent foreign exchange holding limit. These banks, however could not sell to other private sector players because they were in a similar situation.
“The decline in foreign exchange sales to RBM may indicate that liquidity has improved. However, it may also mean that demand for foreign exchange has increased and these commercial banks are able to sell to each other without engaging the bank of the last resort,” said Ngwira.
The RBM daily money market reports indicate that on July 23 gross official import cover due to the forex purchases rose to $485 million an equivalent of 2.58 months cover. This is a marked increase from $186 million an equivalent of 0.99 month cover on March 22.
The private sector foreign exchange reserves have also improved to $287 million from $225 million in the period under review.
Earlier in May, while commenting on foreign exchange purchases, RBM noted that foreign exchange improved availability was due export proceeds going into normal channels due to the floated kwacha which found its real price.
RBM argued that the demand for foreign exchange has waned largely because a large a backlog for foreign exchange payments have been cleared off and that we are off the peak demand period for foreign exchange.
The bank of last resort noted that the demand for foreign exchange would pick up soon due to fertiliser imports, but hoped they would be able to support the kwacha from depreciation unless if there is an external shock such as a spike in fuel prices.
