4 February, 2023

Malawi Kwacha needs further devaluing-EIU

The Economist Intelligence Unit (EIU) has maintained that the Malawi Kwacha remains overvalued, as it was not sufficiently devalued in May.

The global economic think tank’s analysis which has been quoted in NICO Asset Managers monthly economic report, comes barely a month after World Bank gave a similar assessment.

The Kwacha was devalued by 25% in May to trade at K1,026 to a dollar from K830, but current black-market rate is approaching K1,300.

The Reserve Bank of Malawi (RBM) assured the public that it has no intention to devalue the currency, as it has strategies that will resolve current forex supply challenges.

However, EIU says the Kwacha is expected to be affected by widening current-account deficit in 2022.

“The value of the Kwacha is expected to continuously be undermined by a large current-account deficit in 2022, with high volatility expected in 2023 owing to the probable transition to a less interventionist exchange-rate regime.

“The EIU expects the exchange rate to reach K1,224.4/US$1 at end-2022, with the average exchange rate standing at K992/US$1 for 2022,” reads part of the report.

In a recent interview, Malawi University of Business and Applied Sciences Economist Betchani Tchereni highlighted the need to realign the currency’s exchange rate.

While suggesting that the local monetary policy as ineffective, the EIU has raised its forecast for full-year inflation in 2022, to 22 % – slightly lower than government’s 23.2 % projection.

A finance professor at MUBAS, James Kamwachale Khomba has stressed that the prevailing global and domestic shocks are rendering Malawi’s monetary policy ineffective as inflationary pressure remains high.

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