Reserve Bank of Malawi (RBM) Governor Charles Chuka has said any attempt to de-float the kwacha will be disastrous to the economy which he argued is picking up.
Chuka said this in Malawi’s capital, Lilongwe, on Wednesday amid calls by, among others, the Consumers Association of Malawi (Cama) who are fighting the floatation of the currency which has resulted in high consumer and service prices.
Said Chuka: “Any attempt to abandon this exchange rate system will make matters worse. The market-determined exchange rate is the best for Malawi.”
Chuka was speaking at a news conference at the RBM headquarters in the capital city when he issued an end-of-year statement which also provided a general outlook for 2013 regarding monetary policy implementation.
RBM devalued the local unit by 49 percent on May 7 last year and also announced the floatation of the local currency.
Since the announcement, there have been calls by market analysts and other commentators for government to reverse the decision, which they argue has triggered a high and unbearable cost of living.
Floatation critics also argue the decision was ill-timed, saying it was not backed by enough foreign reserves.
But Chuka said the central bank is comfortable with the current exchange rate system which Malawi is following. He said the system has already seen the kwacha fairly stabilising in recent weeks.
“If a currency is free-floating, it’s a guarantee that you will find dollars on the market…I pray that this system is to stay for Malawi,” said Chuka.
He recalled that in 1994, Malawi ‘auctioned’ the kwacha and the currency shed its value from K4 to K8 to a dollar in a week before losing its value further to K18 after five weeks.
Chuka said during the same period, inflation rose to 91 percent and that interest rates soared to as high as 46 percent.
“After that period, inflation fell sharply to 9 percent and foreign reserves were built up. People should not forget that this is not the worst,” said the RBM governor.
Chuka also hoped that in 2013, inflation, currently at 33.3 percent, will likely average 18.4 percent and that most indicators will stabilise.
In an interview later, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira noted that most of the reforms that government is implementing are bearing fruit, saying the kwacha has already shown signs of stabilising.
“This is a result, no doubt, of strict monetary policy which moved quickly to remove excess liquidity from the market,” said Kaferapanjira.
He also said foreign exchange is also available, ‘again sometimes sporadically’, but stressed that most factories are now running.
Answering questions on Zodiak Broadcasting Station (ZBS) on Monday, President Joyce Banda maintained that there will be no turning back on floatation of the kwacha despite calls by Cama who are planning January 17 demonstrations to protest the resultant high cost of living.
The President expressed optimism that economic recovery is on course, but admitted that Malawians will have to persevere for a while before full recovery.