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Kwacha loses grip in January

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Thokozani Saulosi

Malawi’s trading unit, the Kwacha, depreciated in January against other major currencies including the US Dollar, the Pound and the Rand.

Figures in the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) report show that the local currency depreciated by 0.4 percent against the dollar, trading at K822.81 to the dollar.

The unit’s strength went down by 0.3 percent against the Pound trading at K1, 211 per Pound, and lost 7.2 percent against the Rand to be trading at K62.

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Meanwhile, against the Euro, the Kwacha appreciated by 5.8 percent and traded at K1,072.50 as at the close of January.

The situation has been explained by the scarcity of foreign currency as, in the month under review, official foreign exchange reserves were recorded at $399.98 million, representing 1.60 months of imports slightly below 1.72 months in December last year and heavily below 2.41 months same period last year.

The report indicates that these developments signaled the continued pressure on the external account of Malawi’s economy.

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“Inelastic demand for imports such as petroleum, fertiliser and pharmaceuticals as well as low foreign currency inflows continue to put pressure on the foreign exchange market forcing the monetary authorities to draw down on the official foreign reserves in order to cushion the foreign currency supply deficits,” the report reads.

Market analyst Thokozani Saulosi attributed the development to Malawi’s increased appetite for imports against a lean export base.

He added that the dollar, pound and rand have also gained value; therefore, coupled with Malawi’s dwindling exports, it signals that the local unit will continue falling.

“Government is working on stabilising the fall of the Kwacha in different ways such as the Buy Malawi Strategy, financial instruments and encouraging export-related products but, in the short to medium terms, we should expect gradual but consistent losses in the Kwacha,” Saulosi said.

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