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Pressure persists on the Kwacha

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The value of the Kwacha has continued to drop against major trading currencies such as the United States (US) Dollar, British Pound and the Euro, posing the local unit as one of the trouble currencies of late.

This follows recent trends through the year as the local unit has also performed poorly against the South African Rand.

Figures sourced from the Reserve Bank of Malawi (RBM) show that, in August 2021, the Kwacha was trading at K818 to a dollar from K815 in July, K1,194 from K1,192 against the Pound, and K1,041 from 1038 against the Euro in previous months.

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However, in the same month under review, the local currency gained value against the Rand, trading at K58 from K60 in the preceding month, following the recent appreciation that also occurred in the month of July whereby the South African currency traded at K60 from K62.

The Kwacha volatility could be attributed to increased demand for foreign exchange against less supply on the market.

RBM spokesperson Ralph Tseka Thursday attributed these trends to market forces.

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“The market forces of demand and supply are what play into the depreciation or the appreciation of the currency. Therefore, what determines the value of the Kwacha are these fundamentals and this is what continues to be the case,” Tseka said.

Notably, the Kwacha has been losing value amid the selling season for the country’s major export earner, tobacco.

Recently, the Tobacco Commission reported that cumulative revenue by the eighteenth week of tobacco sales of 2021 exceeded sales of 2020, with the total volume sold at 120,672,364 million kilogrammes (kg) ($193,906,213.30 million) up from 112,070,689.00 million kg ($172,170,759.48 million) representing a 13 percent increase in value sold, with the average price at $1.61 from $1.54 in 2020.

Speaking in an interview, University of Malawi economist Laston Manja said much of the exchange rate movements are as a result of foreign forces relative to domestic forces.

“With the US dollar gaining value in the month from some stimuli, including a strong jobs report and being a safe-haven in light of the pandemic, it makes sense that the Kwacha lost ground.

“Of course, depreciation against risk currencies such as the British Pound, whose demand has declined compared to the US dollar over worries of the Covid pandemic derailing economic activity, should signal that we still need to improve our foreign exchange reserves,” Manja said.

Notably, in its mid-year economic report for 2021, Nico Asset Managers said the Kwacha depreciated against the US dollar due to continuous demand and supply imbalances.

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