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Malawi Kwacha depreciates 7% in eight months

The Malawi Kwacha lost value by 7.1 percent against the United States dollar in the first eight months of 2016, according to a report.

Announcing the figures in its latest Monthly Economic Brief, Nico Asset managers attributed the fall to the strengthening of the dollar against other currencies as well as low tobacco prices and high rejection rates that have negatively affected inflow of foreign currency to the country.

Comparatively, the kwacha depreciated by 23.20 percent during a similar period last year.

Economic analysts have, however, predicted that the kwacha will continue to depreciate in the medium to long term on account of existent current account deficits and weak foreign direct investment inflows.

“The Kwacha is expected to continue depreciating as a result of low inflow of foreign currency due to poor performance of the tobacco market sales, low levels of investment and a persistently high inflation rate.

“In the medium to long term, the kwacha is expected to depreciate due to significant current account deficit and weak foreign direct investment inflows despite improved forex reserves,” indicates Nico in its outlook.

In the month of August, the Malawi Kwacha depreciated against the U.S. dollar and the Euro but appreciated against the British Pound and South African Rand.

Figures from the Reserve Bank of Malawi (RBM) show that as at August end 2016, the kwacha was trading at K721.05 against a dollar, depreciating by 0.08 percent from the past month.

The unit continued to depreciate in the month under review despite the ongoing tobacco sales as prices for the leaf remained low coupled with high rejection rates that have negatively affected the inflow of foreign currency.

Meanwhile, total forex reserves increased to $945 million (4.52 months’ worth of import cover) as at 30 August 2016 from $943 million (4.51 months’ worth of import cover) in July 2016 compared to $973 million (4.93 months of import cover) in August 2015.

Of the total reserves, $610 million (2.92 months of import cover) was gross official reserves and $335 million (1.60 months of import cover) was private sector reserves.

Among key risks facing the economy, according to the Nico report, include weak export base which may affect the stability of the kwacha against other currencies on the market.

“Low tobacco prices are likely to reduce the export value thereby maintaining the wide current account deficit leading to the depreciation of the kwacha,” Nico said.

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