The Reserve Bank of Malawi (RBM) says the kwacha lost K38.83 or 4.5 percent to the dollar in a space of six months as demand for foreign exchange continues to surpass its supply.
The central bank figures show that the kwacha depreciated from an average K776 in January to K811 in June this year.
The continued depreciation of the kwacha comes at a time the country is earning dollars from tobacco touted as the country’s main foreign exchange earner.
During the same period, official gross foreign exchange reserves, which are under the direct control of RBM, have fallen to $424.99 million or an equivalent of 1.7 months of import cover in June from $502.98 million or 2.41 months of import cover in January this year.
Alliance Capital Limited research manager Bond Mtembezeka said in an interview on Monday that the kwacha has been stable without real and fundamental basis; hence, the inflow is weak compared to the strength of the depreciation.
Financial Market Dealers Association of Malawi president Mclewen Sikwese has asked authorities to maintain the balance between market supply and demand as well as the perception of players in the foreign exchange market to rein in the local unit.
He said: “In a floating exchange rate regime, the value reflecting the demand and supply dynamics in the foreign exchange market and the speculative value due to the level of confidence that the buyers and sellers of foreign currency have on the future value of a particular currency affect the value currency.
“In our case, the kwacha continues to suffer from both as there is a supply and demand misalignment but also a speculative element due to the lack of confidence in the future value of the kwacha.”
Sikwese also said as the authorities move to put in place measures to address the demand and supply imbalances, there is a need to work at building confidence in the future value of the kwacha.