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More trouble for the kwacha

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Troubles for the Malawi Kwacha are showing no signs of relenting with latest figures showing the local unit depreciated against the US dollar by 8.01 percent in the first ten months of 2016.

Despite the tobacco market still being open, an Economic Brief for October 2016 released by Nico Asset Managers shows the kwacha continued to depreciate in October as a result of low inflow of foreign currency.

As at October 31 2016, the Kwacha was trading at K726.58 to the US dollar, representing 0.72 percent depreciation from the previous month

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In the same month, the kwacha fell by 1.73 percent to the South African rand to trade at K52.82.

The local unit was, however, seen appreciating against the euro and British pound.

Nico expects the kwacha to continue depreciating in the medium to long terms largely on the back of poor performance of the tobacco market, low levels of investment and persistently high inflation.

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“Low tobacco prices and high rejection rates have negatively affected the inflow of foreign currency. Tobacco market sales have been affected by weak global demand due to increased health campaigns. In the medium to long term, the kwacha is expected to depreciate due to significant current account deficit, weak foreign direct investment inflows, poor tobacco exports and low forex reserves,” the report reads.

This year’s tobacco market has been characterized as one of the worst in history and is expected to spillover to 2017.

Rejection rates have continued to worsen 31 weeks into the tobacco market. Traditionally, the tobacco market runs for 25 weeks. The development is likely to have spillover effects and puts into question the future of Malawi’s major foreign exchange earner.

Auction holdings Limited (AHL) Group earlier confirmed that unless there are improvements in the rejection rates, the market will require 11 more weeks to exhaust the leaf at the floors. About 20 million kilogrammes of tobacco is yet to be sold.

Statistics from AHL Group shows that after 30 weeks of tobacco marketing, the country had sold 163 million kilogrammes of all types of tobacco at an average price of $ 1.50 per kilogramme, earning the country $244.1 million.

Earlier, Chancellor College Economics Professor, Ben Kalua , described the kwacha volatility as worrisome.

Kalua said the trends reflect the dynamics of supply and demand.

“There are concerns that banks are not as responsive to demands of the market, so, the currency is getting weaker as there have also been aid flow problems,” he said.

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