Money market analysts have described the recent stability of the Kwacha as temporary, owing to a huge backlog of import bills.
A statement from the Reserve Bank of Malawi (RBM) shows that in April, commercial banks which participated in foreign exchange auction maintained price of the unit against the US dollar at K1, 751.
However, only four banks participated in the auction.
In an interview, Financial Market Dealers Association (Fimda) President Leslie Fatch said the backlog on import bills will continue to put pressure on the Kwacha, which may force the local unit to lose ground in coming months.
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“…However, we have to keep in mind that the effects of the previous realignment in the exchange rate in March 2024 has a lag. As such, we do not anticipate the market rate to move again immediately as the Kwacha tries to find its feet on the new level it moved to.
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“In addition, the stabilisation of the exchange rate could reflect the hope and anticipation that the market has on the seasonal supply from tobacco proceeds,” Fatch said.
In a separate interview, Economics Association of Malawi (Ecama) President Bertha Chikadza said with the tobacco market underway, there is significant inflow of foreign exchange and the Kwacha has stabilised a bit.
She said fluctuations may be minimal in such a way that they do not require further realignment of the Kwacha with the dollar.
“The Kwacha’s stability can be emanating from the inflow of foreign exchange coming from tobacco sales and other agricultural products considering the trend, as the Kwacha has always been stable around this season; we are an agricultural economy and this is the season we sell our produce.
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“However, it is important to understand the stability issue critically as it might also be a disincentive to exporters and end up growing the informal market of foreign currency,” Chikadza said.
Economist Marvin Banda said the Kwacha’s value is difficult to address because the currency is sometimes propped up by the RBM; however, the relative stability in the exchange rate can be attributed to a lack of impactful exogenous shocks since November.
He said it should be expected that stability could be achieved.
“Availability of the forex is one cause, because it determines the effective demand for the forex. Export gains from agriculture products can be seen as aiding the currency due to the continued replenishment of gross reserves which peak mid-year.
“The dollar had also been relatively stable since November last year, which means that even though the value of the dollar has trended upward, it did so less relative to recent times. In the month of May, seeing a continued increase in export gains as the agri-business cycles purrs at full speed, the effects of the cycle usually see inflationary pressure abated and typical stability in the exchange range,” Banda said.
Commenting on the Kwacha footing, Malawi Confederation of Chambers of Commerce and Industry President Wisely Phiri said foreign exchange supply, especially the dollar, has been limited on the market, which continues to impinge on private sector operations.
In March, the Kwacha fell by 3 percent against the dollar, the first time since the 44 percent devaluation in November 2023, following a foreign exchange auction by the RBM.
The Kwacha moved from selling at K1, 700 to the current K1, 751 against the dollar.
