The Reserve Bank of Malawi (RBM) governor Charles ChukA remains confident the Kwacha currency will soon stabilize according to market fundamentals saying the country’s economy will not collapse.
“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,” Chuka said in a statement seen by Nyasa Times.
Currently, the kwacha has lost value by 338 percent from K169 against the US Dollar, since it was devalued in May 2012.
Chuka said RBM has 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 said the weakening of Kwacha should not be viewed as the collapse of the Malawi 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.
But the World Bank recently questioned RBM implementation of monetary policy, observing that the policy appears to be losing its effectiveness.
In Malawi, the main objective of monetary policy is to achieve low and stable prices, which preserves the value of the kwacha and encourages investment needed to achieve sustained economic growth and employment creation.
RBM uses a variety of monetary policy instruments that include the Policy Rate (PR), the Liquidity Reserve Requirement (LRR), Open Market Operations (OMO) and communication.
“In an attempt to arrest the depreciation in the value of the kwacha, government has implemented a number of administrative measures to regulate foreign exchange trading by authorised dealer banks. However, so far, these measures have had only a limited effect,” reads World Bank statement in its biannual publication on Malawi called the Malawi Economic Monitor.
World Bank is among a group of multilateral donors that suspended budget support to Malawi in November 2013 because of plunder of public funds at Capital Hill dubbed Cashgate.Follow and Subscribe Nyasa TV :