Pressure persists on the local unit, the Kwacha, as it, on average, fell by 2.3 percent against other major foreign currencies in the first six months of 2024.
This is according to the recent Financial Stability Report published by the Reserve Bank of Malawi (RBM).
According to the report, during the period under review, the Kwacha depreciated by 3.12 percent against the US dollar in both the authorised dealer banks (ADBs) and telegraphic transfer (TT) markets, translating to a loss of K52.05 in value. It closed the first half at K1, 748.01 to a dollar.
The local unit also fell by 2.52 percent against the British Pound, 0.99 percent against the Euro, and 2.7 percent against the South African Rand.
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The report also notes a concerning trend in the bureau’s indicative cash rate, which has been elevated compared to previous periods.
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“The widening spread between the actual trade-weighted TT rate and the bureau’s indicative cash rate has continued to feed into inflationary pressures, gaining the attention of monetary policy authorities.
“Resultantly, the current monetary policy stance which aims at curbing the increase in inflation has increased the stress on the financial system following the increase in the policy rate and its attendant interest rates,” the report reads.
According to the report, the development has an impact on the affordability of loans and can increase the default rate in the financial system in the near term.
Economist Marvin Banda said the deviations are caused by seasonal variations in market conditions that are dictated by agricultural cycles and exogenous conditions.
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He claimed that the currency price is positioned by the central bank, which means that appreciation and depreciation of the Kwacha are controlled with market distorting mechanisms.
“The economic bladder of the nation is close to explosion and we are all anxious to see how it will turn out.
“We are yet to understand how uncertainties may affect the nation’s Extended Credit Facility programme because surely certain policy deviations are critical to fulfilling the requirements articulated in Article IV consultations,” Banda said.
