The kwacha registered a mixed performance in the third quarter (Q3) of this year by depreciating against the dollar amid improving foreign exchange reserves, Reserve Bank of Malawi (RBM) figures show.
In its Monetary Policy Report published on Friday, RBM said during the period under review, the local unit lost 1.26 percent against the dollar to settle at K822.1655, but performed relatively better against currencies of most major trading partners.
Meanwhile, gross official reserves improved to $521.9 million or 2.09 months of imports in Q3 from the preceding quarter’s position of $425 million or 1.70 months of imports during the quarter under review, thanks to the International Monetary Fund’s $188.7 million (about K155 billion) special drawing rights allocation.
Reads the report in part: “Reflecting the foregoing developments, the kwacha performed relatively better against currencies of most major trading partners than envisaged.
“In particular, the local currency gained 1.88 percent against the British pound, 0.57 percent against the euro and 4.11 percent against the South African rand and traded at K1170.4731 per pound, K1026.1367 per euro and K58.8950 per rand, respectively, during the quarter under review.”
In the five years to 2021, reserves position has worsened from three months of import cover in 2018 and 2019 to 2.9 months of import cover in 2020.
In an interview yesterday, Catholic University of Malawi economics lecturer Hopkins Kabaghe said while there has been an improvement lately, the reserves are still below the recommended three months of import cover.
“We should strive to maintain an import cover of way above three months to ensure sustained stability of the exchange rate,” he said.
Malawi’s gross official reserves have lately been under pressure as the country’s demand for imports, largely because of the Covid-19, have been rising.
Market analyst Bond Mtembezeka, who is also research manager at Alliance Capital Limited, said as long as Malawi has imbalances in the current account, the country will have currency instability.
“I think we need to walk the talk on import substitution and also diversify our export base,” he said
Financial Market Dealers Association of Malawi president McLewen Sikwese is on record as having said that in nominal terms, the country needs to raise $306.75 million (K253 billion) to attain three-month import cover following the rebasing of a monthly import requirement from $209 million to $250 million.