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Kwacha weakens against major trading currencies

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By Chimwemwe Mangazi 

A monthly economic review for June published by the Reserve Bank of Malawi (RBM) has shown that the local unit, the Kwacha, depreciated against major trading currencies in the month owing to increased demand for foreign currency.

The report indicate that the currency depreciated by 2.1 percent against the South African Rand and traded at K44.02. It further shows that the local unit registered a marginal depreciation of 0.2 percent against the United States dollar and traded at K743.05 and depreciated against the British Pound and the Euro by 0.4 percent and 1.4 percent to trade at K924.12 and K845.25, respectively.

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The Kwacha also depreciated against the Chinese Yuan by 1.1 percent and traded at K104.25.

“The depreciation was on account of excess demand for foreign exchange observed during the reviewed month. However, the out turn on the rand was explained by strengthening of the rand due to renewed investor confidence anchored on prospects of a global economic recovery,” reads the report in part.

Commenting on the development economist Sane Zuka said the global economic situation explains why the Kwacha depreciated in June and has been depreciating against major trading currencies since then. He said the trend is arising from the strengthening of the major trading currencies as a result of economic interventions stepped up in most of the countries.

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“The British Pound and the US Dollar have appreciated since June due to the slowing down of the Covid-19 in those countries and especially the end of complete lockdown in the UK. This trend is, however, worrisome to Malawi at this time as we are still in the tobacco exporting season where the country nets in a considerable
amount of foreign currency,” Zuka said.

Professor of economics at Chancellor College, Ben Kalua, said in a separate interview that the Kwacha is overvalued. He said the local unit will continue to tumble until it reaches it real market value.

“There is a huge disparity between the value of the Kwacha in the commercial banks and foreign exchange bureaus, it is even wider with the value on the black market. This shows that the kwacha is indeed being
over valued and it is bad for the economy in general,” Kalua said.

However, the RBM report highlights that gross official reserves increased to $653.3 million (about 3.1 months of import coverage) at end June 2020, from $624.5 million (3.0 months of import coverage) recorded in May 2020.

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