The Reserve Bank of Malawi (RBM) is optimistic that local currency Kwacha which has significantly slipped against its major trading partners will stabilise soon.
Currently, the kwacha has lost value by 338 percent from K169 against the US Dollar, since it was devalued in May 2012.
The free fall of the kwacha has, however, sent shockwaves among Malawians as they see prices of goods and services going up on a daily basis.
However, in its statement released on Friday evening, the Central Bank said despite the current challenges, the kwacha will stabilise soon.
The statement, signed by RBM governor Charles Chuka said despite likely negative impacts of the El Niño weather pattern, the outlook is that the kwacha exchange rate will stabilise sooner than later.
“RBM believes the kwacha exchange rate has over depreciated given the current level of foreign exchange reserves. The government fiscal operations have been significantly curtailed and domestic borrowing is now being contained in line with the IMF supported economic program.
“The central bank has also strengthened its instruments of monetary policy and expects to tighten monetary conditions without raising interest rates further. With these efforts in train, combined with continued use of available foreign exchange reserves, the kwacha should stabilise soon,” said Chuka.
He also noted that the kwacha depreciation is hurting low-income earners and is creating undue uncertainty in the business community.
Chuka however said it is misleading to portray the free fall of the local currency as a collapse of the economy.
“Despite the debilitating exogenous shocks, the kwacha have performed relatively better than in other countries when they also floated their currencies in the 1980’s and 1990’s. Malawi continues to pay for its international obligations and foreign exchange reserves have never been better, especially taking into account the loss of donor direct budget support.
“Fiscal and monetary policy coordination has been strong despite daunting fiscal pressures. In particular the Reserve Bank has demonstrated capacity to implement needed monetary policies and is committed to take any actions to stabilise the kwacha in weeks ahead,” he said.
Last week, Chancellor College economics professor Ben Kalua said failure by the system to attract investors in the import substitution area is costing Malawi a lot since the adoption of the free-floating exchange rate regime in May 2012.
Kalua said because of failure to attract investors to produce various commodities locally, Malawians continue to import almost anything, thereby draining the little forex available and exerting pressure on the local currency.