Reserve Bank of Malawi (RBM) Governor Charles Chuka cannot say with certainty when the kwacha will stabilse and begin to appreciate against major trading currencies.
He has, however, banked his hopes on the proceeds from tobacco sales which will unleash enough foreign exchange to help stabilise the free-falling kwacha between May and July this year.
“The kwacha will stabilise, but I cannot mention the date. You can never say precisely that it will stabilise at this point, but sooner or later,” said Chuka at a press briefing in Lilongwe to clarify the latest minutes of RBM’s Monetary Policy Committee (MPC). The committee met on Tuesday to review monetary policy development.
He was flanked by his deputies and spokesperson Ralph Tseka.
Such an open admission by the governor will likely send shockwaves in the financial market and create panic in the foreign exchange market, a development that could bolster parallel foreign exchange trade.
Since the Joyce Banda’s administration devalued and subsequently floated the kwacha, the local currency has massively depreciated from K250 to a dollar to about K400 at the moment, fuelling imported inflation, and caused a rise in prices of basic commodities.
Chuka said as foreign exchange gradually improves in the wake of the tobacco marketing season, it will likely trigger a multiplier effect of strengthening the currency.
“The real solution to kwacha depreciation is forex availability. You do not stop it by word. People should not panic because a lot of work has been done,” he assured.
Chuka argued that the kwacha is subject to other shocks such as the pressure from other international currencies, adding that the RBM believes that the monetary policy is on track and the central bank is confident with the management of the currency.
“We think monetary policy is pretty effective. We are sure that the kwacha has been well managed although the impact of the depreciation on the poor has been high and it is a serious matter,” he said.
During the news conference, Chuka noted that at the moment, there is huge demand for foreign exchange as companies are restocking thereby demanding more foreign exchange due to the “better prospects this year”.