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Government trashes fresh devaluation claims

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Wilson Banda

Finance Minister Sosten Gwengwe has rubbished claims from some quarters that Malawians should brace for another devaluation following the 25 percent currency depreciation late last month.

Since the Reserve Bank of Malawi adjusted the Kwacha against major trading currencies by 25 percent on May 27, some economic analysts have taken to social media claiming that the devaluation is not enough and that another depreciation of the currency is in the offing.

But Gwengwe told reporters in Lilongwe on Monday that the fresh devaluation narrative is being propelled by unpatriotic alarmists.

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“It is very saddening hearing from some other Malawians scaring the market and everyone else that there will be another devaluation. That is coming from people who don’t wish the country well.

“If they were people who are well enlightened and know what they are talking about, they should have refered to the Article IV Consultation that the IMF released in December 2021 which clearly said that the misalignment of the Kwacha was at 25 percent,” Gwengwe said.

He added that when RBM did its own assessment, they also reached the conclusion that the misalignment was by 25 percent.

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“We had a choice as a government to do piecemeal devaluation. You do 10 percent, another 10 percent and then five percent but that does not help because it only fuels speculation. But what we had to do is to do a decisive decision once and for all.

“Instead of cutting the whole arm, you opt to start cutting one finger at a time, it does not help. If the treatment is to cut the whole arm, you cut it at once and deal with the aftermath so that the healing is permanent. There way no way this administration could have done piecemeal devaluation because that just puts people in uncertainty and increases volatility and there is no certainty in the market,” Gwengwe said.

He observed that people must not expect any further devaluation because for the authorities to devalue, a misalignment must open in the market.

In a statement on May 26, RBM Governor Wilson Banda said although the Kwacha exchange rate adjustment process may add pressure on inflation in the short term, the central bank is committed to prudent monetary and fiscal policies in order to contain all inflationary pressures within manageable limits.

“Moreover, prices in the shops already reflect to a large extent the Bureaux Cash Rate. To that extent, aligning the ADB’s TT rate with the Bureaux Cash Rate should not lead to further price increases.

“In the short term, this move to a unified, market-clearing exchange rate should make it easier for companies to manage their businesses and therefore strengthen the economy,” Banda said.

He added that, In the medium to long term, it is expected that the economy’s structure of production and consumption will change towards increased exports and reduced imports, resulting into favorable current account balance and hence, increased foreign exchange reserves.

“This, together with the RBM’s commitment to prudent monetary policy conduct should stabilise the Kwacha exchange rate and inflation in the medium term.

“The public can rest assured that despite the challenges in the foreign exchange market, the RBM remains committed to its mandate of price and financial stability,” Banda said.

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