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Kwacha gains, albeit slightly

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Betchani Tchereni

The local currency, Kwacha, has gained a slight momentum against the dollar trading at K1,036 as of Thursday from K1,100 in May when it was devalu by about 25 percent.

The Kwacha has also gained weight against other trading partners, trading at K1,269 from K1,380 in May against the Pound and K62 from K72 in May against the Rand while the Euro is trading at K1,071 from K1,180 in May.

RBM indicated that the devaluation of the Kwacha aimed at aligning it with the then market trends and giving the Kwacha its true value as the disparity between the formal and informal market was wide.

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The central bank’s spokesperson Ralph Tseka said the appreciation may be on account of the tobacco market where the bank is getting 30 percent of proceeds and injecting them into the formal market.

“We are experiencing inflows every week from the 30 percent that comes from tobacco and it is really assisting the market in terms of foreign exchange supply and the market is now having liquidity,” he said.

Financial Market Dealers Association of Malawi (Fimda), however, believes the appreciation is on account of the weakening of other currencies, especially the Euro, which is now at par with the dollar.

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Fimda Vice President Jim Kalua said because of the depreciation of the Euro, those who were holding foreign currency would start offloading it to the market thereby injecting some liquidity into it.

“On the other hand, exporters to the Euro Region will be losers because their products will become more expensive for European buyers,” Kalua added.

Even though there is such an improvement in the performance of the Kwacha, the country’s foreign exchange reserves continue to linger around 1.5 months against the recommended three months of import cover.

Economists have since warned that such positive Kwacha performances will be temporary if the country does not widen its export base and reduces its unquenched appetite for imports.

One of the economists from Malawi University of Business and Applied Sciences Betchani Tchereni said the country should invest heavily in agriculture and establish industries for value addition.

“We need resources to establish industries and if we cannot have the resources we need to have the industrialisation levy because our economy needs sacrifices and not short-term solutions,” Tchereni said.

The Kwacha has remained volatile on account of existing mismatches between forex demand and supply, among other things.

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