The Kwacha is likely to continue depreciating against other trading currencies if the low supply of foreign exchange continues, the Reserve Bank of Malawi (RBM) has said.
In its January Market Intelligence report published last week, the central bank says economic outlook would be determined by the net effect of exchange rate pressures, roll-out of Covid vaccine and commencement of the 2020/21 harvest season.
Figures in the report show that the Kwacha depreciated by about 4.33 percent against the United States (US) dollar in the last half of 2020 due to squeezed forex supply.
In January this year, the Kwacha lost 1.0 percent to the US Dollar.
“The continued shortage of supply of foreign exchange to the market is expected to trigger a further depreciation of the exchange rate in the near term, thereby raising non-food inflation through high costs of imported goods including fuel,” the report reads.
Reacting, Polytechnic-based economist Betchani Tcheleni, however, said the situation might change depending on food availability at the commencement of the harvesting season and likelihood of a drop in Covid pandemic cases.
He said if the situation did not improve on the supply of foreign exchange on the local market, then it may lead to further rise in headline inflation.
“We are a predominantly importing country, therefore, whenever there is shortage of foreign exchange, it may be inflationary and we may see the economy behaving differently,” Tcheleni said.
Malawi is a predominantly importing and consuming nation, highly dependent on raw agricultural products for exports, with tobacco remaining the country’s top export crop.
Export trade patterns are expected to normalise, following a decrease in Covid cases and introduction of a vaccine
Recent figures show that gross official reserves went down between February 2020 and February 2021 from $785.31 million to $483.38 million.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
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