Forex reserves decline as economy bites hard

Post was last updated: February 11, 2016

Gross official foreign exchange reserves shrank by US$24.29 million during the first week of February, according to data released by the Reserve Bank of Malawi (RBM).

RBM reports that official foreign exchange reserve now stand at US$594.24 million from US$618.53 million as at the end of January, 2016, representing 2.84 month of import cover against the internationally recommended three months cushion.

Malawi’s foreign exchange reserves have continued to go down on the back of mounting pressure on the economy characterized by high instability in key macroeconomic indicators. The drain in forex reserves is a clear indication that importation of goods is still on the rise..

In the Daily Financial Market report released on Monday, RBM also reported that the kwacha kwacha depreciated against the US dollar while appreciating against the British pound, the Euro and the South African rand. The kwacha as of Monday was trading at K740 against the US dollar.

However, last week both the Reserve Bank and the minister of Finance Goodall Gondwe said the country’s economy will stabilise soon.

RBM governor Charles Chuka said the depreciation of the kwacha is being influenced by global developments and the stance of monetary policy.

He also said despite likely negative impacts of the El Niño weather pattern, the outlook is that the kwacha exchange rate will stabilise sooner rather than later.

“RBM believes the kwacha exchange rate has over depreciated given the current level of foreign exchange reserves. Reduced demand in global commodity markets and expectations for an increase in US interest rates has caused havoc in the exchange rates of many economies, including Malawi. The Malawi situation is exacerbated by proximity and dependency on the South African economy for imports,” he said.

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