The European Union (EU) Ambassador to Malawi Rune Skinnebach has reaffirmed commitment to ponder over a possible resumption of direct budget support to Malawi.
This comes after the International Monetary Fund (IMF)’s approval of a four-year $174 million Extended Credit Facility (ECF) programme for Malawi which has a signalling effect on donor support.
Already, the World Bank approved $137 million budget support for Malawi, Kwacha is trading at around K2500 per dollar on the parallel market compared to K2000 in most authorised dealer banks (ADBs), creating a spread of about K500 between the two markets.
This also means the spread between ADBs and official exchange rates stand at about K300.
- Advertisement -
According to a statement by RBM Governor Wilson Banda, five out of the country’s eight banks participated in the December 13 forex auction.
- Advertisement -
“Based on the results of the auction, the market selling price will remain at K1,700.00 per USD,” Banda said.
RBM in January this year adopted forex auctions as a price discovery mechanism aimed at determining the prevailing market clearing price of the Malawi Kwacha against the United States Dollar and other major currencies.
After the 44 percent devaluation of the Kwacha in early November, the central bank increased the frequency of forex auctions from monthly to fortnightly.
Briefing reporters recently, the fortnightly forex auctions will help to ensure that the kwacha doesn’t get misaligned again.
- Advertisement -
“Those auctions will help us to know what the temperature is like out there: Whether to pump in more forex into the system or to take out more forex out of the system.
“Those frequent auctions are going to help us basically to know what is going on out there to ensure that we don’t end up in a situation where the currency is misaligned,” Banda said.
Speaking in Lilongwe on Wednesday during a panel discussion when the World Bank launched the Malawi Economic Memorandum, Standard Bank Malawi Chief Executive Officer Phillip Madinga called for consistency in the management of the exchange rate.
According to Madinga, all the crises that Malawi has had in terms of balance of payment have happened on the back of a fixed exchange rate. He said the recovery of the economy has always happened on the back of a floated exchange rate.
In an interview last week, Reserve Bank of Malawi spokesperson Mark Lungu said the spread between the official rate and ADBs rate should not be a cause for worry because it is within the required limit.
“The gap between official rate or indeed those published by commercial banks and those by bureaux is around five percent or less which is within range. This was not the case before the exchange rate adjustment,” Lungu said.
Last month, the RBM announced a 44 percent devaluation of the kwacha.
