By Emmanuel Chilemba:
The Kwacha maintained its ground on the market, trading at K1, 751 to the United States Dollar for five consecutive months, figures in the latest foreign exchange auction results statement from the Reserve Bank of Malawi (RBM) show.
According to the statement signed by the central bank’s governor Wilson Banda, the auction was held on August 22 and attracted seven authorised dealer banks that offered $350,000.
The foreign exchange auctions are meant to facilitate the discovery of a prevailing market clearing exchange rate for the Kwacha against major currencies.
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In a written response to a questionnaire yesterday, RBM spokesperson Mark Lungu said stability in the rate indicates that the market sees the current rate as the correct clearing rate, hence reflecting a positive image of the country’s economy.
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“The primary goal for conducting foreign exchange auctions is to determine the exchange rate from a market perspective. Stability in the rate indicates that the market sees the current rate as the correct clearing rate and that’s good for the economy.
“Economic dynamics change and we continue with the auctions and that will guide on where the rate will be,” Lungu said.
Economics Association of Malawi (Ecama)’s President Bertha Chikadza observed that an improvement in the import cover has played a greater role towards stabilisation of the currency during the period under review, albeit being slightly below the global benchmark of three months.
“Looking ahead, the situation may be mixed. On one hand, the lean season could result in higher forex outflows, especially to purchase food and other stuff, compared to inflows.
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“On the other hand, the strategies currently being implemented by the government, which also includes the recommendations by the IMF as part of ECF conditions, may lead to improved forex inflows during this period and might lead to the stability of the Kwacha,” she said.
Financial Market Dealers Association President Lesley Fatch said the development reflects a positive image of the foreign exchange auction.
“The forex auctions provide a mechanism that allows the exchange rate to respond to market forces; so we take the results of the auctions as a reflection of the market,” Fatch said.
The development comes as the country has raked in $395.3 million after selling over 132.8 million kilogrammes of tobacco in the just ended market season.
Initiated in January last year, the foreign exchange auctions are meant to facilitate the discovery of a prevailing market clearing exchange rate for the Kwacha against major currencies.
