Expert cast doubts on forex levels

Post was last updated: November 28, 2018

By Chimwemwe Mangazi:

KUPPENS—It does not make sense

Centre for Social Concern (CfSC) Director, Jos Kuppens, has said he does not understand why the local currency has been losing value against the United States dollar in recent months, despite the Reserve Bank of Malawi (RBM) claiming that the country is sitting on an import cover of above three months.

Kuppens said the expectation was that the local currency should be more stable considering the enormous level of reserves the country has.

“I am actually surprised about that because RBM is telling us that there is plenty in the reserves. So, why is the dollar firming up against the kwacha? I don’t really understand what is happening it’s not a logical consequence because, when you have enough forex reserves in a country, that means that your currency will be more stable.

“…I don’t know; are they over printing kwachas? You never know; this is election time and the government will want to look good so they will do all it takes to look good and sometimes it is not too good for the country in the long run,” Kuppens said.

A snap check in banking halls in Lilongwe on Monday found that the kwacha was trading at between K757 to K760 to a dollar and K56 to the South African rand.

Last week, the Malawi Energy Regulatory Authority (Mera) cited the kwacha’s loss of value against the green buck as one of the reasons for hiking fuel prices.

“Since the last price revision in September 2018, the kwacha has depreciated against the South African Rand from K50.22 to K51.57, representing a loss in value of 2.69 percent. Since the last review of the In Bond Landed Cost of petroleum products in July 2018, the kwacha has depreciated by 0.57 percent trading at K738.15 to a dollar from K733.95 to a dollar noted in October 2018,” reads in part a press release issued by Mera.

A Financial Market Developments report issued by RBM on Friday, November 23, indicates that gross official reserves decreased during the month of September to $727.63 million (3.48 months of imports) from $753.52 million (3.61 months of imports) at the end of the preceding month.

Economics Association of Malawi Executive Director, Maleka Thula, said the slide in kwacha against other currencies is seasonally expected as the country is in the lean period following the closure of the tobacco market.

Thula also cited growing demand for forex to meet the importation of agricultural inputs as another reason for the pressure on reserves.

“The weakening of the kwacha could be temporary and also there are other significant sources of forex such as direct project forex receipts from donors which would stabilise the kwacha in the period leading to next agricultural season.

“It is worth noting that the current forex reserves, at over three months of import cover, are enough to sustain the current demand of forex but also the lean period is associated by speculation among market players which further puts pressure on the kwacha to depreciate,” Thula said.

RBM Spokesperson, Mbane Ngwira, echoed Thula’s sentiments that demand for forex may result from several factors, including speculation by market players.

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