Foreign reserves rise to 2.92 months

Malawi’s gross foreign exchange reserves —a combination of official and private sector reserves— continue to soar, rising to about 2.92 months of import cover last week, figures from the Reserve Bank of Malawi (RBM) have shown. 

RBM daily financial market report for June 2 indicates that the gross official reserves rose to $611.25 million—equivalent to 2.92 months of import cover on May 31—from $588.66 million, which is equivalent to 2.82 months of imports.

The figures show that the central bank has maintained a sound forex reserve position in recent months, averaging above 2.8 months.

Along with the increase in foreign exchange reserves, the kwacha has also remained stable since last December, trading at around K734 to a dollar.

The local unit has held on to the current position since last December, after it retained another steady K730 to a dollar position in the previous three months.

Explaining the foreign exchange position

recently, RBM spokesperson Mbane Ngwira said the situation is on the back of tight monetary policy.

He said the central bank has been building reserves to around three months, and to achieve the feat, the bank has set its target to have excess liquidity at zero as this is what brings about the demand for foreign exchange.

“We ensure that the kwacha is priced at a level where people opt for the kwacha. It is our hope that with policies in place, inflation will, on the other hand, continue to go down,” he said.

Speaking to Business News recently, economist Alick Nyasulu said the current economic underpinnings and government dealings may lead to an increase in reserves, which might also lead to a strong kwacha.

“With the resumption of budgetary support to government, we see the country doing well in terms of import cover. World Bank is also balancing its lending approaches as its traditional market has become competitive with countries now fast looking east for infrastructure funding that had less stringent rules,” he said.

Presenting the 2017/18 National Budget statement, Minister of Finance, Economic Planning and Development Goodall Gondwe was upbeat that reserves are likely to surpass the three-month import cover by the end of the financial year, banking hopes on the resumption of budget support by the World Bank, the European Union, and the expected disbursements from the IMF and export proceeds. n