Kwacha in slight gain

The kwacha, which has been on a depreciation path for the past 12 months, slightly gained against three major foreign currencies, the Reserve Bank of Malawi (RBM) figures show.

In its latest Weekly Financial Market Development Report, the central bank said the local unit has appreciated against the dollar, pound and South Africa rand, but marginally depreciated against the euro.

The figures show the local unit gained K3.32 during the week ended December 31 to close the year at K819.4421 to the dollar.

On Friday last week, the local currency traded at around K816 against the dollar, according to a RBM daily financial market development report, which is another gain from K819 to the dollar.

The central bank has not provided an explanation on what has caused the gain, but market analyst Cosmas Chigwe in an interview on Saturday attributed the slight appreciation to reduced demand for foreign currency.

He said: “Most companies close for festivities both in Malawi and outside as such internationally trade declines and consequently demand for forex is reduced.

“As a result, importers are not really desperate to make payments as suppliers are closed.  Even now, most companies are still closed and on top of that January traditionally has slightly low demand after the festivities.”

Chigwe said since the foreign exchange market is driven by demand and supply, adding that local currency might not be appreciating because the currency is not doing fine on the supply side.

Market and investment analyst Bond Mtembezeka said in an interview on Friday that the appreciation is temporal as the economy still has a backlog of foreign exchange applications and the kwacha would soon go on a depreciation path.

Bridgepath Capital chief executive officer Emmanuel Chokani said there is no need to read too much into the appreciation, observing that supply and demand imbalances still persist.

“The structural challenges around the economy are still prevailing as such these could just be short-term fluctuations,” he said.

The kwacha has been sailing in troubled waters for the past year, with figures from the central bank showing that it lost about K7 to the dollar as of November last year.

Analysts attributed the depreciation of the kwacha to the sustained supply and demand imbalances compounded by the reduced trading activity.