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Firm says kwacha future uncertain

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Investment management and advisory firm, Alliance Capital Limited, says the future of the Malawi kwacha remains hazy despite the start of the tobacco selling season.

In its April 2016 economic report released on Friday, Alliance Capital says poor earnings from the country’s green gold have made it hard to predict the future of the kwacha.

Foreign currency in Malawi mainly comes from tobacco exportation which accounts for 60 percent of the total export proceeds.

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However this year’s tobacco season has opened on a poor note with high rejection rates and low prices as such the revenue from the sales have remained lower compared to the previous years.

As at the close of trading on Friday, the country had realised a total of US$27.56 million from a total of 21,371,299 kgs of the green gold.

On average a kilogramme of tobacco has attracted US$1.29 which is lower than what the leaf attracted last year.

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“Against this backdrop, the kwacha remains volatile and the magnitude of its appreciation during this season remains cloudy as the appreciation will largely depend on improved sales in the following weeks,” reads the report in part.

Commenting on inflation, Alliance capital says food inflation is expected to go down on the premise of the seasonal food supply.

It further says the lower oil prices on the global front and a relatively stable exchange rate should keep domestic pump prices steady in the short term therefore decreasing non-food inflation.

“We, therefore expect headline inflation to continue on a declining trend in the next months,” says Alliance Capital.

The firm has also indicated that it expects interest rates to remain elevated in the short term.

“Government and the monetary authorities have maintained the tight monetary stance by keeping the policy rate and liquidity reserve requirement unchanged at the second MPC meeting in April. Therefore, the base rate is expected to remain stable.

“However, on the money market front, there has been increased appetite for borrowing on the market as government continues to service maturing Repo’s, therefore; we expect the rates to remain elevated in the short term,” reads the report.

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