The Malawi kwacha has marginally appreciated against the US dollar, particularly in Authorised Dealer Banks (ADBs), thanks trickling in of the tobacco proceeds which have boosted foreign currency reserves, a local economist has said.
As of Thursday, the kwacha traded at K418 at Indebank, K416 at National Bank of Malawi (NBM) and K419 at CDH Investment Bank against the dollar from K420 where it settled for at least two weeks.
But much as monetary and fiscal authorities were longing for the appreciation of the local unit, importers too have benefits to look forward to, as they will have to raise fewer kwacha to buy the dollar.
However, it would not necessarily be good news for tobacco growers and exporters because it will mean reduced earnings in kwacha.
Since the Reserve Bank of Malawi (RBM) devalued the local unit on May 7 by 49 percent and subsequently adopted a market-determined exchange rate, the kwacha, which has been on a free-fall, has lost substantial value against all the major trading currencies.
Calculations by investment and advisory firm Nico Asset Managers Limited show that the kwacha has, since March 2012, shed 142 percent against the dollar, British pound (130 percent), rand (102 percent) and 133 percent against the euro.
It has taken at least six weeks since the tobacco market was opened for the kwacha to respond to the trickling in of dollars realised from the sales of leaf in all the country’s auction floors.
So far, tobacco has generated $42.1 million (K17.6 billion) in the week ending April 19 2013, pushing the import cover to slightly over one month of reserves ($188.1 million).
University of Malawi’s Chancellor College economics professor Ben Kaluwa told Nation Online on Thursday the appreciation of the kwacha is expected at this time of the year when tobacco sales are in progress.
“This is nothing new because that is what happens almost every year. As you know, Malawi is an agro-based economy, and this is the time when most of the crops that earn forex are sold,” he explained.
In its economic newsletter for April 2013, the Malawi Stock Exchange (MSE)-listed largest bank by assets and profitability of NBM attributed the stabilisation of the kwacha/dollar exchange rate, to weak demand for foreign exchange.
“Having almost cleared external arrears which had accumulated in the previous three years, the weak demand is also as a direct consequence of an effective monetary policy implementation strategy by the Reserve Bank of Malawi notwithstanding the weak fiscal performance,” explained the bank.
But the bank said the expectation, however, is that since the monetary reforms of last year, this could be the first tipping point for the Malawi kwacha to remain relatively stable at current levels especially during the tobacco auction season,” said the bank.
The Economist Intelligence Unit (EIU), in its first quarter (January to March) report, said the forecast increase in forex reserves from $154 million in 2012 to $291 million this year, will also help stabilise the exchange rate.