The Reserve Bank of Malawi (RBM) has downplayed the shortage of foreign exchange in some commercial banks, and described the situation as a “normal seasonal factor” that will not affect the kwacha stability.
RBM Governor Dalitso Kabambe was reacting to the current situation in which some commercial banks have low levels of foreign exchange and are turning away customers.
In an interview on Monday in Blantyre, he said the situation is “a mere seasonal factor” and is not a cause for concern to the central bank.
Said Kabambe: “As we are heading towards the next tobacco marketing season, normally foreign exchange reserves slightly go down around this time and pick up immediately we start the tobacco sales.
“This is not worrisome as one would think because our exchange rate remains stable. We always support the market and if need be we will support the exchange rate.”
He said the central bank is keen to maintain a stable currency, adding this is important because the country’s inflation basket, particularly non-food inflation, is largely driven by the exchange rate position.
“If the exchange is moving, many items in the non-food basket would also move,” said Kabambe.
“In order to check that we need to ensure that there is stability in the exchange rate so we can guarantee that we are checking and will maintain the stability of the kwacha,” he said.
Weighing in on the same, Financial Market Dealers Association (Fimda) president Patricia Hamisi agreed with Kabambe, stressing that the situation is a normal occurrence.
She said: “During the lean season in Malawi, which runs from October to March, the country usually experiences forex shortage as such the current shortage is expected as this is a cycle that happens every year.
“There will not be any big implications of this as there is no speculation on this. If there was speculation or that, we could have seen a depreciation of the currency. To the contrary, for the past four years, we have had stable currency and this year is not different.”
During the lean season the economy usually experiences shortage of foreign exchange as demand for the hard currency, particularly the dollar, outstrips supply because importers scramble for the available foreign exchange to finance their imports.
However, for the past four years, the kwacha has largely remained stable relative to major trading currencies largely supported by adequate foreign exchange reserves on the market, a development that has helped to ease inflationary pressures while anchoring inflation expectations in the short to medium-term.
RBM figures show that gross official reserves have been on the rise and closed the year 2019 at $846.6 million, equivalent to 4.05 months of imports from $656.0 million, which is equivalent to 3.14 months of imports in September 2019.
Similarly, foreign exchange reserves held by the private sector increased to $324.1 million or 1.55 months of imports in December 2019 from $310.3 million, an equivalent of 1.48 months of imports in September 2019.
But a banker at one of the country’s commercial banks said in an interview on Tuesday that foreign exchange is currently scarce in authorised dealer banks, with the available being prioritised for strategic imports such as fuel and medical drugs.