Kwacha appreciation excites RBM boss
Malawi’s central bank Governor Charles Chuka has said the firming of the local currency, the kwacha, and the slowdown in the country’s headline inflation rate are signals that monetary policy implementation by the central bank is yielding expected results.
The Reserve Bank of Malawi (RBM) boss has since said the easing of Malawi’s inflation rate and the kwacha appreciation-an increase in the value of the kwacha currency with respect to other foreign reference currencies, have come a month ‘earlier than anticipated.’
“The slowdown in inflation and the stabilisation of the kwacha have come a month earlier than anticipated. If we stay the course, I expect to see downward adjustment in interest rates in the course of the year,” Chuka told Nation Online in an exclusive interview in the capital, Lilongwe.
He was commenting on the recent dramatic gain in the value of the kwacha against the dollar and other major international currencies.
On Friday, for example, the dollar was selling at K406 at CDH Investment Bank, K403 at National Bank of Malawi and K418 at Indebank from around K420 where it settled for about a month.
The sudden U-turn in the movement of the kwacha comes at a time when the tobacco market, which often wires in a greater chunk of foreign currency than any other crop, is in progress and has already seen over $60 million (approximately K25 billion) being realised on the market.
Tobacco alone accounts for about 60 percent of Malawi’s total export earnings and this year government expects tobacco proceeds to hit $300 million up from $177 million earned in the 2012 season.
On one hand, Malawi’s year-on-year headline inflation rate has for the first time in many months registered a drop, marginally decelerating to 36.5 percent in March which represents a 1.5 percentage points ease than the February headline inflation rate, thanks to the improved availability of food, especially cereals in most parts of the country.
Added Chuka: “Given adequate time, good policies work always. Consistent implementation of a package of fiscal and monetary policies is producing expected outcomes.”
The RBM governor also observed that currently, treasury bills (T-bills) yields are coming down and the reserve level is improving on the market.
Going forward, Chuka said he is optimistic that Malawi will meet a target of two months import cover and about 14 percent inflation by end December, 2013.
“I foresee more stable conditions in 2014 as government continues to implement its zero net domestic borrowing policy,” he said.
A Chancellor College economist, however, told Business News at the weekend that the appreciation of the kwacha, though it should be good news to importers as they will raise few kwacha for imports, might hurt tobacco growers and exporters as they will earn reduced earnings.
Since RBM devalued the local currency by a magnitude of 49 percent and adopted a market-determined exchange rate, the kwacha has been massively ceding its value to major currencies, losing an estimated 142 percent to a dollar since March last year, according to Nico Asset Managers.
The Malawi Stock Exchange (MSE) listed National Bank of Malawi (NBM) has since attributed the stabilisation of the kwacha to other currencies to the weakening demand for foreign exchange on the market.
“This [signs of stabilisation] is mainly due to weak demand for foreign exchange. Having almost cleared external arrears which had accumulated in the previous three years, the weak demand is also as a direct consequence of an effective monetary policy implementation strategy by the Reserve Bank notwithstanding the weak fiscal performance,” said the bank in its April 2013 economic newsletter.
