Sunday, January 24, 2021
  • About Us
  • ImagiNATION
  • Adverts
  • Rate Card
  • Contact Us
The Nation Online
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Opinion
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Opinion
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
No Result
View All Result
Home Business Business News

Liquidity swings to a deficit of K2.7bn

by Johnny Kasalika
01/06/2012
in Business News
4 min read
0
Share on FacebookShare on TwitterShare on WhatsAppShare on LinkedinLinkedinShare via Email

reserve bank1 | The Nation OnlineThe sharp drop in liquidity levels has stunned market analysts who are now grappling to understand the cause or the monetary policy tools that authorities are deploying to manage the sudden swing.

RelatedHeadlines

Malawi trade balance to face continued pressure—firm

Bank charges Scaring consumers

Firm outlines 3 economic risks

 

In fact, the economy right now is having a liquidity deficit, which simply means less cash circulating in the system than people are demanding, a stunning turnaround from a kwacha oversupply of K10 billion (about $40m) just three weeks ago.

Data from investment and portfolio managers, Blantyre-based Alliance Capital Limited, released on Wednesday, show a liquidity deficit of K2.7 billion (about $10.8m) from an excess of K10 billion three weeks ago.

There is speculation that the Reserve Bank of Malawi (RBM) maybe taming excess kwacha supply by stemming the demand for foreign exchange but none of the analysts randomly asked on Wednesday seemed to know how the central bank could use forex to achieve these liquidity cuts.

While making borrowing expensive by raising the bank rate from 13 percent to 16 percent three weeks ago could help, analysts do not believe that such a move could have coursed through the financial system so soon to have a dent, especially at a time inflation is swinging double digit gallops and the 49 percent devaluation of the kwacha, on the back of an import cover hovering around one month, has ballooned the number of loitering kwachas chasing few foreign currencies.

Despite these doubts, analysts suggest that the banking industry could be heading for stability in liquidity levels in the near future.

In April this year, the liquidity levels burgeoned, a development analysts attributed to monetary authorities’ helplessness to control its upward spiral.

But this week, a money market analyst said that the sudden swing in liquidity levels to a deficit clearly shows that the central bank is mopping up excess liquidity on the market.

“No one is giving a proper answer as to what is happening but, this is surprising. There is no liquidity and this could mean that monetary authorities are stemming demand for foreign exchange.

“This means that the amount of credit for people to buy foreign exchange will be less,” said the analyst, who preferred anonymity until he establishes what instruments the RBM is using to clear excess kwacha.

The levels of liquidity, in other words, money in circulation, has been rising largely due to the shortage of foreign currency in Malawi which has been prevalent for the past two years or so.

“Clearly, liquidity management remains a major challenge in the face of increasing kwacha balances due to unavailability of foreign exchange.

“Meaningful reduction in excess reserves is, perhaps, only achievable upon achieving reasonable inflows of foreign exchange reserves to settle the huge backlog of foreign bills,” explained a money market report in April.

RBM spokesperson Ralph Tseka could not be reached for comment. Business News wanted to find out the monetary policy tools authorities have been using to suddenly curb the rising liquidity levels to the point of being in a deficit.

Coupled with the weakening of the kwacha by 49 percent and its subsequent floatation on May 7 2012, the RBM also took steps to improve the availability of foreign exchange in the market by transferring United States dollars earned at the tobacco auction floors to commercial banks.

The analyst said the move has also helped to reduce liquidity levels because the commercial banks’ customers are now buying foreign exchange; hence, reducing the excess kwacha.

In their weekly commentary, Alliance Capital Limited said the interbank market remained active with the average interbank rate closing at 15.76 percent against a discount window rate of 16 percent.

“Ideally, the discount window rate is meant to be a punitive overnight rate and so the fact that interbank trades are being clinched at a rate almost equal to this rate might signal an impending further adjustment in the general level of interest rates,” according to the commentary.

Discount window accommodation, as of Friday, May 25 2012 was estimated at K3.4 billion, down from K6.8 billion at the close of business the week before.

Malawi has been in a foreign exchange deficit arising from lower export revenues from tobacco, the country’s main forex earner wiring in 60 percent of earnings, and the lack of budgetary support from donors under the Common Approach to Budget Support (Cabs).

Due to the forex shortage, commercial banks were stuck with kwacha and were unable to provide importers with requisite foreign exchange fuelling liquidity.

Previous Post

Lack of post codes affecting businesses

Next Post

NPL, The Post in twinning programme

Related Posts

Business News

Malawi trade balance to face continued pressure—firm

January 23, 2021
Some Malawians are still using cash to run away from bank charges
Business News

Bank charges Scaring consumers

January 23, 2021
economy | The Nation Online
Business News

Firm outlines 3 economic risks

January 22, 2021
Next Post

NPL, The Post in twinning programme

Trending Stories

  • Not yet given retirement benefits: Mutharika

    Tonse faulted on former presidents’ benefits

    0 shares
    Share 0 Tweet 0
  • SA returnees in forced quarantine

    0 shares
    Share 0 Tweet 0
  • Wasteful Chakwera

    0 shares
    Share 0 Tweet 0
  • court rebuffs apm on frozen account

    0 shares
    Share 0 Tweet 0
  • AG disowns K750m compensation signature

    0 shares
    Share 0 Tweet 0

Opinions and Columns

Emily Mkamanga

Citizens power brings change

January 24, 2021
Search Within

The rural farmer needs to take centre stage

January 24, 2021
My Thought

Spread hope not fear

January 24, 2021
Big Man Wamkulu

Hot babe wants to trap me, should I ran?

January 24, 2021
  • Values
  • Our Philosophy
  • Editorial policy
  • Advertising Policy
  • Code of Conduct
  • Plagiarism disclaimer
  • Disclaimer
  • Privacy Policy
  • Terms of use

© 2021 Nation Publications Limited. All Rights Reserved.

No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Opinion
  • Sports
  • Chichewa
  • Enation

© 2020 Nation Publications Limited. All Rights Reserved.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.