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kwacha on appreciation path

 

Economics professor Ben Kaluwa has backed Minister of Finance, Economic Planning and Development Goodall Gondwe that the kwacha has bottomed out and hinted the local unit might gain significantly soon.

Kaluwa, an economics professor at Chancellor College, a constituent college of the University of Malawi, said the kwacha may trade at as low as K620 or thereabout by next month against the dollar owing to various forces on the market.

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He said factors to prop up the unit include the onset of tobacco marketing season, low demand of the dollar after private traders and government imported farm inputs and speculation by forex dealers.

Gondwe, in his winding up speech of the Mid-year Budget Review Statement in Parliament on Monday, said it was expected the kwacha exchange rate would stabilise, warning speculators who were perpetuating the depreciation to take note.

He also said the kwacha exchange rate seems to have reached “the point of equilibrium” and that the local unit should now start to appreciate.

“It is, therefore, expected that the [kwacha exchange] rate should stabilise soon and those speculations that are perpetuating the depreciation should take note of this,” he said.

In economics, equilibrium is a state in which forces such as supply and demand are balanced, and in the absence of external influences, the value of economic variables, in this case the kwacha exchange rate, will not change.

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In some authorised dealer banks (ADBs), the kwacha seems to have gained against the dollar from K765 last Wednesday to K719 today (Thursday).

Kaluwa said in an interview yesterday Gondwe was not off the point on the kwacha performance, explaining that there are also various reasons that would make kwacha stabilise faster than was projected.

He said at this time, the country was experiencing tight liquidity, where money is difficult or expensive to get; it was likely businesses would not struggle to find foreign currencies readily available in the financial institutions, and dealers would fight for a few customers by offering competitive rates.

Kaluwa said: “This, coupled by the tobacco season starting soon, will force the kwacha to appreciate even further and I would not be surprised it goes to as low as K620 or thereabout to a US dollar.

“This, of course, may be temporary relief as it would begin to shoot again after the nation starts experiencing high liquidity and people would want to spend in buying items, including making importations.”

Kaluwa said low fuel prices on the international market would also hugely contribute to the strength of the kwacha because much of the country’s forex goes into fuel importation.

A dealer at one of the commercial banks said that when the nation was experiencing low liquidity, more companies stopped paying bills hoping that the dollar would go down, but that trend, he disclosed, makes businesses suffer.

 

 

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