By Kingsley Jassi:
Forex auction is in the spotlight as it is said to have failed to respond to real market forces.
This comes as, at the recent auction, the Kwacha rate to the US dollar was maintained at K1, 751, which is relatively lower than the rate offered in authorised dealer banks.
While the Reserve Bank of Malawi defends the system, which was initially set to determine the market rate, the financial market industry thinks it is high time the central bank relooked the system.
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Recently, Minister of Transport Jacob Hara told Parliament that fuel importers were accessing the US dollar at K2, 500 from banks and not at the official rate of K1, 751. At the black market, the rate dollar is going as high as K2, 900.
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When asked on the credibility of the forex auction system as a determinant of market rate, RBM spokesperson Mark Lungu said the auction was achieving its purpose of realising market clearing rate.
“The participants are all authorised dealers as licenced by the central bank. In that case, forex auctions remain relevant,” said Lungu.
However, with the black market rates becoming increasingly higher and more attractive, there is fear that the formal market will continue losing liquidity, hence worsening the access levels.
But RBM Governor Wilson Banda recently faulted speculation for the situation.
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In an interview, Financial Market Dealers Association President Lesley Fatchi said there was a need to take another look at the auction system as determinant of official market rate.
“The question should be how can the auction attract the forex from the market? Maybe we need to relook at the system to see why it is not responsive,” said Fatchi.
He said the objective was not met, urging authorities to look at other parameters that can complement the auction.
Meanwhile, the central bank is tasked to restock the depleted combined official and private sector foreign reserves at the lowest point this year at $550 million as of August, which represents just 2.2 months of import cover.
Malawi committed to a set of conditions to earn the Extended Credit Facility with the International Monetary Fund and among them are external sector policies that focus on rebuilding official international reserves and facilitating a market-determined exchange rate.
