The Reserve Bank of Malawi (RBM) has attributed the recent dramatic gain in the value of the kwacha to other foreign reference currencies to the central bank’s continued implementation of tight monetary policy.
The central bank’s spokesperson, Mbane Ngwira, speaking in an exclusive interview on Tuesday, said in essence the tight monetary policy has resulted into the bank mopping out excess kwacha liquidity out of the system and hence bringing down mounting demand for foreign exchange.
Ngwira has also linked the shrinking demand for dollars and other major foreign currencies on the market to the restrained government expenditure by treasury which he said is supporting RBM’s stance to mop out excess liquidity.
Said Ngwira: “Instead of selling out the dollars, we have been taking the kwacha out of the system which is bringing down demand for dollars. Now demand for dollars is not that all high, it’s suppressed.”
After months of ceding to the dollar, beginning last week, the local currency made a U-turn, selling at an average of K444 per one dollar as of yesterday from over K450 in the preceding week.
In fact, the currency peaked to as high as K468 in some foreign exchange bureaus, based on daily market statistics published by RBM.
On Monday, the kwacha was selling as low as K39 to the South African rand from K45 it was trading last week.
The appreciation comes deep into the lean period where importers scramble for little available dollars on the market to finance for fertiliser imports, among other key imports.
It also comes in the thick of continued donor aid freeze totaling $150 million towards budget support and also before the opening of the tobacco market somewhere next month.
“Of course, this appreciation [of the kwacha] has become before our expectation. It could be appreciating further but that will depend on our policy implementation. But just like anyone else, as a central bank we would want a stable currency,” added Ngwira.
Last week, some economic commentators attributed the sudden strengthening of the kwacha to the positive review of the country’s economy by the International Monetary Fund (IMF), among other factors.
Following the positive review, IMF approved the injection of $20 million towards the IMF-supported Extended Credit Facility (ECF) worth about $156 million.
But Ngwira described the perception triggered by the IMF injection as just psychological which he said cannot be sustained without the support by RBM’s tight monetary policy implementation.
“If you look at $20 million out of $188.1 million, you find that $20 million is basically nothing and the fact is that RBM has been purchasing dollars from the market which has lessened demand for the dollars,” added Ngwira.
Malawi’s monthly foreign exchange consumption or import cover is currently pegged at $188.1 million.