Kwacha depreciates as demand and supply imbalances persist

Official figures are indicating that the Malawi kwacha depreciated against a majority of key trading currencies in late 2022 amid persistent demand and supply imbalances on the market.

According to a latest Reserve Bank of Malawi (RBM) economic review, the local unit weakened by 0.1 % to the US dollar as well as 3.5 % and 4.1 % against the British pound and the euro respectively.

In other words, the local currency traded at 1,034 kwacha 42 tambala to the dollar, 1,276 kwacha 81 tambala to the pound and 1,105 kwacha 82 tambala to the euro.

According to the report, the kwacha’s loss of strength to the dollar was due to demand and supply imbalances on the market; while the pound appreciated as investor risk appetite towards the British unit increased.

“Meanwhile, the pound appreciated as investor risk appetite towards the pound increased following dampened expectations on the US dollar due to a slowdown in the pace of interest rate hikes in the US economy. “Similarly, the euro gained strength as increased investor risk appetite led to a shift from US dollar assets to the euro supported by falling energy prices,” reads the statement in part.

The statements further reads; “In the Asian region, the Malawi kwacha lost 6.7 percent, 1.9 percent and 1.0 percent against the Japanese yen, the Chinese Yuan and the Indian rupee, respectively, and traded at K7.41 per yen, K143.63 per Yuan and K12.58 per rupee as at end of the review month”.

Meanwhile, the RBM has started buying forex on auction at basis from authorised dealer banks; a move analysts are warning could lead to further depreciation of the kwacha.

The bank said in a statement that the participating dealer banks will be selling the forex with the exchange rate determined by them.

Professor of finance and strategy at the Malawi University of Business and Applied Sciences, James Kamwachale Khomba, has since tipped authorities to avoid fully liberalising the exchange market.

“Monitoring part of it will be a problem because this now 100 percent liberalisation without any direct intervention by the central bank because its core mandate is to ensure that the basic economic parameters are working according to their interpretation not necessarily the interpretation of commercial banks,” Khomba said.

There are hopes that the results of the preliminary auctions will determin the way forward on the Kwacha’s future.