By Justin Mkweu & Yamikani Kachaje:
Local unit, the Kwacha, continued losing grip on major trading currencies including the United States (US) Dollar, the Euro, and the South African Rand as demand for forex remained elevated.
As of Friday last week, the Kwacha was trading at K823.39 from K820.29 the previous week.
Figures sourced from the Reserve Bank of Malawi (RBM) show that, on average, in September 2021, the Kwacha was trading at K820 to a dollar from K818 in August, K1049 from K1,041 against the Euro, and K60 from K59 against the Rand in previous months.
However, during the month under review, the local currency gained value against the pound, trading at K1,190 from K1,194 in the previous month.
In an earlier interview, RBM spokesperson Ralph Tseka attributed the trend to market forces of demand and supply.
“The market forces of demand and supply are what play into the depreciation or the appreciation of the currency. Therefore, what determines the value of the Kwacha are these fundamentals,” Tseka said.
Commentators feel that the continued depreciation of the local unit could have negative effects on the economy.
In an interview on Tuesday, University of Malawi Economics Professor Ben Kalua attributed the Kwacha performance to a mismatch between supply and demand.
The Kwacha volatility has heavily affected most businesses in the country.
In an interview, Reunion Insurance Chief Executive Officer Dorothy Chapeyama said the depreciation of the Kwacha ultimately affects business performance in the country.
“Many economic factors are affecting our businesses, one of them is the depreciation of the Kwacha,” Chapeyama said.
Meanwhile, Malawi’s gross foreign exchange reserves—a combination of official and private sector reserves—continues to dwindle, a situation RBM attributes to persisting pressure on foreign exchange demand.
According RBM’s weekly financial market developments report for the week ending September 24, the gross foreign exchange reserves closed the review at $537.7 million, representing 2.15 months of imports.
This is a drop from the week ending September 17, when the country’s gross foreign exchange reserves closed at $549.2 million standing for 2.20 months of imports.
“Since climbing to a 10-month high of $604.5 million at end-August, boosted by Special Drawing Rights inflows, gross official reserves have declined cumulatively by $66.8 million,” the report reads.
Dwindling of the import cover has a negative effect on numerous fundamentals including the footing of the Kwacha against major trading currencies.
Commenting in an earlier interview, Financial Market Dealers Association President Mclewen Sikwese attributed the lowering of the import coverage period to rebasing of the monthly requirement from $209 million to $250 million.
Financial market analyst Cosmas Chigwe said the best way to deal with the problem was to turn around the country’s export trends rather than depending on raw agricultural products.
“We need to add value to our export products which fetch cheaper prices because we use the same foreign exchange to import them when value has been added to them,” he said.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.