Kwacha falls 16% RBM blames market

The kwacha has depreciated by 16 percent  against the dollar since peaking in June 2013 during the tobacco marketing season.

The Reserve Bank of Malawi (RBM) has since blamed the market for the fall.

The kwacha has experienced a steep fall since the closure of the tobacco sales with the local unit retreating against all major trading currencies.

RBM’s official rates show that the local unit has retreated by 22 percent to sell at K536.32 against the euro, 24 percent to K636.29 against the pound sterling, 16 percent against the dollar and the rand between June 3 and October 4 2013.

A depreciating kwacha will likely make imports, including fuel, fertilisers and other critical raw materials more expensive and increase business costs, cost of living and make life unbearable.

The RBM has blamed the swift descent of the kwacha on the market, arguing some traders merely follow market leaders without having adequate information.

Responding to a questionnaire in an e-mail on Thursday, RBM spokesperson Mbane Ngwira said the foreign exchange market, just like other financial markets in Malawi, are segmented and some traders may not have enough information.

He argued that all the players who do not have information and capacity to process the available information just copy what the leader is doing regardless of the origins.

Ngwira further noted that although the kwacha is depreciating, the country has enough foreign exchange reserves.

“Indeed the country as a whole has more reserves in comparison to the same period last year. Currently, the reserves are recorded at $739 million [K290 billion] or 3.9 months of imports. This includes official reserves, authorised dealer banks own reserves and private holdings in foreign currency denominated accounts.  However, this may not be reaching out to the general public who demand and supply forex in the market,” he said.

The central bank spokesperson added that a depreciating currency offers income opportunities to holders of foreign exchange and this may encourage them to hold on to the reserves even longer.

Ngwira noted that the RBM is making sure that information is available to all stakeholders for them to make informed decisions.He said this information is available on their website, in newspapers and sent to all analysts and stakeholders.

Ngwira noted that in collaboration with Financial Markets Dealers’ Association of Malawi (Fimda), RBM has introduced a Code of Conduct for dealers on the financial markets to support the liberalisation of the markets.

He noted that the current situation is being monitored closely to assess its impact on the balance of payments (BoP) position of the country and the short to medium term impact on the economic recovery programme.