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Kwacha still losing grip

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TSEKA—It follows demand and supply

The Kwacha continued to lose value against major trading currencies including the United States (US) Dollar and British Pound on account of low exports, experts say.

In the first half of 2021, the local unit lost substantial ground against currencies such as the US dollar, British Pound, Euro and Rand.

Figures sourced from the Reserve Bank of Malawi (RBM) show that, in July 2021, the Kwacha was trading at K815 to a dollar from K806 in June and K1,92 against the Pound from K1,190 the previous month.

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However, in the month under review, the local currency gained value against the Euro, trading at K1,038 from K1,040 in June, whereas the Rand was trading at K60 from K62 in the preceding month of June.

The Kwacha has been depreciating hastily albeit this being the peak of selling season for tobacco, Malawi’s major export earner.

This far, the commodity has raked in about $183.7 million from sales of about 112.7 million kilogrammes (kg) up from $152 million realised during the same time last year after selling 99.9 million kg.

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RBM spokesperson Ralph Tseka said market forces were at play.

“Being a market-determined exchange rate, that is why [for example], the US dollar has actually been depreciating, meaning that there has been more demand than supply of the foreign exchange in the market.

“It means the price, in this case the exchange rate, reacts. That is why there is depreciation. As a market determined exchange, it will follow the forces of demand and supply,” Tseka said.

He added that revenue from tobacco sales has been used to meet obligations by tobacco merchants as they pre-finance for next season’s production.

Economics Association of Malawi Executive Director Frank Chikuta, however, said the tobacco revenue remained key in bringing stability to the foreign exchange market.

In an interview, University of Malawi economist Laston Manja attributed the Kwacha’s appreciation against the Euro and Rand to loss of value for the currencies.

“Around mid-month, the South African Rand depreciated rapidly following massive protests, looting and riots; on the European front, monthly losses were due to the pandemic and the policy changes by the European Central Bank (ECB) were less confidence-inspiring,” Manja said.

He added that, going forward, the observed relative improvement in uptake of jabs in Malawi will likely bring about optimism and spur economic activity.

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