Reserve Bank of Malawi holds key on kwacha rate

Post was last updated: September 14, 2015

Local investment advisory firm says the ongoing sharp fall in the Malawi kwacha exchange rate can be slowed down if the Reserve Bank of Malawi (RBM) can start selling foreign exchange to the private sector.

In the absence of that, Nico Assets Managers says it sees the kwacha continuing losing ground in the short term as the end of the tobacco selling season approaches.

With RBM still holding on to US$672 million or 3.22 months of import cover by end last week, Nico Assets believes the central bank can take control of the exchange rate through forex injections into the market.

Commercial banks are currently low on foreign exchange stocks with an RBM financial market report of last week indicating that all commercial banks had only US$4 million in their control by Wednesday last week.

Foreign Currency Denominated Account holders in commercial banks, however, had US$303.22 million in banks by Wednesday – putting total private sector reserves at 1.47 months of import cover.

RBM says in the report on its website that it has been selling some of its reserves in “support of importation of strategic commodities” and that between September 4 and September 9, 2015, it had sold US$5.11 million dollars, thereby reducing the official import cover to 3.22 months from 3.24 the previous week.

Malawi requires US$209 million for its import needs every month, according to RBM.

The kwacha has been losing ground against the dollar in recent weeks and was trading at around K615 to the green buck in forex bureaus last week. The official foreign exchange rate is, however, being quoted at K568 to the US dollar by RBM and authorised dealer banks.

Nico Assets attributes the depreciation to significant current account deficit and weak foreign direct investment and expects the slide to continue in the medium term.

The firm also expects inflation to remain elevated in the short term as the kwacha depreciates and food prices increase as a result of late and heavy rains that resulted in a reduced maize production output by 27 percent to 2.9 million metric tonnes.

(Visited 1 times, 1 visits today)

Let us know what you think of this update and remember to add us on our facebook and follow us on our twitter. Make sure to come back daily for more Malawi business news updates.

Quick Links: Malawi Banking News | Malawi Technology News | Download Business eBooks | Ten Signs You Are An Entrepreneur | What is a Managing Director?

Today’s top business story: Top Commercial Banks In Malawi

Source link