MALAWI KWACHA CONTINUES TO GAIN AGAINST DOLLAR, RAND

CHIKONDI CHIYEMBEKEZA

Smile at last! The Malawi kwacha, which lost substantial ground in the past three months against major trading currencies, has continued to gain value against the dollar and rand, thanks to the pick-up in foreign exchange reserves.

The local unit has lost more than a quarter of its value since the sales of the main foreign exchange earner, tobacco, closed at the end of August.

Malawi, an agro-based economy, experiences seasonality in the foreign exchange market, and thus the depreciation of the currency follows the seasonal nature of the market.

The time between September and March is a lean supply period largely due to the closure of the tobacco sales and is characterised by heavy importation of agricultural inputs such as fertiliser, which tend to inflate the import bill, putting pressure on the local currency.

Reserve Bank of Malawi (RBM) financial market development report for Monday shows that gross official reserves—foreign reserves under the direct control of the central bank—are now at $586.11 million, an equivalent of 3.07 months of import cover.

On the other hand, private sector reserves—foreign reserves under the direct control of authorised dealer banks (ADBs), consisting of ADBs own forex position and foreign currency denominated account balances of clients—were recorded at $345 million or 1.81 months of import cover.

This means that, in total, the country is sitting on forex reserves amounting to $931.24 million or 4.88 months of import cover.

Indicatively, the local unit is trading at around K470 against the dollar, according to RBM, but is trading between K480 and K496 against the dollar in some ADBs.

RBM spokesperson Mbane Ngwira said the kwacha is responding to local economic developments such as the tightening of monetary policy and other instruments like liquidity reserve requirement (LRR) for forex deposits and foreign exchange receipts from some export commodities such as tea, sugar and pulses.

Following a directive on LRR, the reserves on forex deposits are being made in kwacha and not in their respective currencies.

“We have ensured that commercial banks should avail the market with forex that is there. The demand [for forex] that was there has been covered by the forex that is available on the market,” he said.

Analysts argue that the economy is, at the moment, not sitting on import bills arrears, but said the depreciation of the kwacha was, to some extent, due to speculation.

In his State of the Nation Address last week, President Peter Mutharika said now that the kwacha has since stabilised, the currency may even appreciate soon, “because we are doing everything possible to get the economy on the right track”.

“Government has put in place policies that will translate into increased exports to increase foreign exchange earnings,” he said.

CREDIT SOURCE: MWNATION