The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has indicated that the Kwacha will continue to weaken against major trading foreign currencies in the short term due to reduced demand for the local unit.
This is contained in the chamber’s Monthly Economic Review for August.
According to Reserve Bank of Malawi (RBM) statistics, in the month under review, the Kwacha weakened against the United States Dollar to close the month at K756 to a collar compared to K749 to a dollar recorded in July.
Similarly, the Kwacha depreciated against the British Pound closing the month at K1,008 to a Pound in the month of August compared to K1,006 to a Pound in the preceding month.
However the local unit appreciated against the Euro and the South African Rand in the month under review.
The Kwacha was trading at K900 to a Euro compared to K908 to a Euro at the end of July while against the Rand, the local currency closed the month of August trading at K46 compared to K47 to a Rand in July.
MCCCI notes that with demand for local exports continuing to be subdued, demand for the local currency will remain weak and this will cause shortage of foreign currency in the country holding all other things like demand for imports constant.
“Taking into consideration the behaviour of foreign exchange markets like in Malawi where currency price determination is on floating basis rather than a fixed peg furthermore, in light of the weakening demand of the local currency, the most probable market outcome for the Kwacha is that, holding all other things constant, it will depreciate against most of its major trading currencies in the short term,” reads the review in part.
It further says that weakening of the Kwacha relative to its major trading currencies may make the country’s exports cheaper in the short-term, and that the economy is unlikely to make short-term gains from the weak currency due to the seasonality of agricultural exports.
In an interview Financial Market Dealers Association (Fimda) president, Patricia Hamisi, said the Kwacha is likely to continue weakening.
“In the short term, if the demand for dollars keeps outweighing the supply then we should expect that the kwacha should continue losing some ground.
“On the international scene, we have also seen the third currencies strengthening against the dollar which in turn has also translated to the Kwacha weakening against the major three, Euro, Pound and Rand,” Hamisi said.