The Reserve Bank of Malawi (RBM) has injected about K17.4 billion (about $43.5m) into the financial market on account of the liquidity crunch rocking some banks and an improved availability of foreign exchange.
An analysis of RBM daily financial market reports for the past 30 days indicates that the central bank has increased injections under foreign exchange transactions into the banking system and has made no withdrawals since April 26 2013.
Thus, the central bank in the past two weeks has been buying foreign exchange from commercial banks, thereby injecting more kwacha into the system. Conversely, commercial banks sold foreign exchange in preference to the local unit to meet their liquidity demands.
In a telephone interview on Thursday, RBM director in the governor’s office, who is also spokesperson for the central bank, Efford Goneka, said a combination of liquidity and foreign exchange availability has made the bank buy foreign exchange from commercial banks.
Said Goneka: “We have been buying foreign exchange from commercial banks due to improved availability which has been as a result of export proceeds going into normal channels due to the floated kwacha which has found its real price.
“In addition, currently, the demand for foreign exchange has waned, largely because we have cleared a backlog for foreign exchange payments and we are off the peak demand period for foreign exchange. We are buying foreign exchange from the banking system because some of the banks are experiencing liquidity problems and thus would rather have kwacha.
“The demand for foreign exchange is going to pick up soon due to fertiliser imports, but we hope we will be able to support the kwacha from depreciation unless there is an external shock, for instance a spike in fuel prices.”
Experts have said the recent illiquidity rocking some banks is a result of RBM’s tight monetary policy to mop up the economy of excess liquidity and rein in inflation. The tight policy has been characterised by a high base lending rate at 25 percent and a 15.5 percent liquidity reserve requirement both of which have been maintained in the recent monetary policy committee meeting held on Tuesday May 7.