Market dealers see kwacha recovering
The kwacha has started gaining ground against the dollar and is steadily appreciating, now trading at K770, according to Financial Market Dealers Association (Fimda).
The kwacha has started appreciating from a three-year low of K778 to a dollar.
In an e-mail response yesterday, Fimda president Patricia Hamisi attributed the gain to the reversal of the underlying factors that caused the depreciation.
“We have seen reduced rejection rates from the tobacco floors from a high of 70 percent to around 25 percent now which has in turn improved the flow of dollars from the tobacco market; hence, addressing the challenge of supply.
“We have also seen that there has been reduced Malawi kwacha liquidity in the market and this could be two-fold; the central bank has continuously worked on tightening the monetary policy to mop out liquidity in the market,” she said.
Hamisi said importers have also prepaid a huge chunk of their bills during the pre-election period and have now limited kwacha at their disposal.
She also attributed the gain to the sentiments expressed by Minister of Finance, Economic Planning and Development Joseph Mwanamvekha that they expect kwacha to settle at K750 to the dollar and panic buying by importers, thereby reducing pressure on the currency.
In an earlier interview, Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said most traders frontloaded their payments before the elections in May, which pushed the exchange rate.
“Going forward, demand will be lower and with tobacco sales in progress, everything will be back to stability,” he said.
In the short-term, market analysts expected the kwacha to keep gaining ground against the dollar to reasonable levels, observing that a steep appreciation could also end up working against the economy.
At the start of the tobacco season in April this year, the kwacha was averaging K731 to the greenback, but it depreciated to an average of K778 as at end June driven by speculation of importers who rushed to clear their import bills while investors took a wait-and-see approach ahead of the May 21 Tripartite Elections.
An analysis by investment advisory firm Alliance Capital Limited (ACL) shows that the local unit opened the quarter at K731.9286 to the dollar and depreciated markedly to reach a three-year low and closed the quarter trading at K775.866 while the pound opened the quarter trading at K956.3781 and closed at K983.4622.
In its 2019, Second Quarter Economic Report, ACL said the current political uncertainty will keep demand mainly from speculators elevated and limited supply as the economy enter the lean period could weaken the kwacha in the medium to long-term.
