It never rains but pours for businesses importing strategic goods and the public at large as the Malawi Kwacha has lost another three percent in value against the United States Dollar to K1, 751 from K1, 697.
This is according to communication from the Reserve Bank of Malawi (RBM) to Authorised Dealer Banks (ADBs), that we have seen, announcing results of a foreign exchange auction held on March 18 2024.
“We are pleased to inform you that the auction was successful and four of the ADBs participated. In this regard, please be advised that the maximum selling price shall be K1, 751 per dollar effective Thursday, March 21 2024,” the letter reads.
Financial Market Dealers Association President Leslie Fatch said the development is not surprising as there seems to be continued pressure on the currency due to the backlog on import bills coupled with limited forex supply.
“However, we anticipate the opening of the tobacco auction to provide some temporary relief. In the long run, we anticipate current demand to subdue due to the impact of the monetary policy interventions implemented by RBM, hence forex demand to also decrease. We would still have to work on a long-term solution to address supply mechanics as the monetary policy interventions implemented lean towards addressing the demand side,” Fatch said.
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Director for Centre for Research and Consultancy, Milward Tobias, said this means that the country continues facing a forex shortage.
“Despite the depreciation being moderate, it will likely have an impact on prices of goods on the market. This is because ours is an importing economy. What it means is that we are going to see prices of commodities on the market increasing,” Tobias said.
The depreciation is coming at a time the economy is still experiencing effects of the 44 percent Kwacha devaluation announced in November 2023.
In the 18th edition of the Malawi Economic Monitor, the World Bank noted that the depreciation of the Kwacha has not yet resulted in a significant increase in foreign exchange availability.
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It said this contrasts with the liberalisation of foreign exchange markets in May 2012, which led to an immediate boost to liquidity in ADBs foreign exchange markets.
“Although the more competitive exchange rate and the threat of additional enforcement of penalties for parallel market transactions serve as incentives to shift transactions into the formal market, continued spreads and uncertainty about the credibility of the newly announced exchange rate regime discourage the formalization of foreign exchange transactions,” the report reads.
