Reserve Bank of Malawi (RBM) Governor Charles Chuka is concerned about mounting pressure on the floated exchange rate and has projected persistence pressure on account of seasonal factors.
â€œMonetary policy space is declining and pressure on exchange rate is likely to persist due to seasonal factors,â€ said Chuka at the joint International Monetary Fund (IMF) Malawi Government economic conference at the Bingu International Conference Centre in Lilongwe on Friday.
He has since attributed the current exchange rate instability to â€˜continued liquidity overhangâ€™ in the economy and has reassured that monetary policy implementation would focus on tightening the growth of money supply.
Chuka also cited unrelenting inflationary pressure in the economy as one other key challenge for monetary authorities despite a slowdown in money in circulation.
The RBM boss outlined the challenges in his presentation titled â€˜Monetary and Exchange Rate Policies in Malawiâ€™ at a function that included leaders from the Executive and Legislative branches of government; representatives of civil society, labour, business, academia and Malawiâ€™s development partners.
The fears by Chuka corroborate worries of economic commentators who contend that the continued loosening of the kwacha against other major trading currencies would fuel imported inflation and erode the purchasing power.
In September 2012 alone, the local unit shed 6.4 percent against the United States (US) dollar to K298.9 from K281, 9.4 percent against the pound sterling to K485.38 from K443.56, 9.9 percent against the euro to K386.06 from K351.42 and 9.5 percent against the South African rand to K36.32 from K33.15, according to Nico Asset Managers monthly economic report.
If such a trend persists as Chuka envisages, it will be a tall order for business captains to properly plan for their expenditures due to the volatility in the operating environment.