As the Malawi’s currency – the Kwacha – continues to register steady appreciation, Malawi’s Minister of Information Kondwani Nankhumwa is appealing to the business community to respond accordingly.
In an interview with Nyasa Times on Friday, Nankhumwa said it would be commendable and reasonable if the business community also slashed prices of their commodities and services that were raised in response to the fall of the Kwacha.
“It made sense when the prices of the commodities and services had to go up following the slump in value of the Kwacha. Would it not make sense if the prices of those services and commodities also reacted to the appreciation of the Kwacha?” asked Nankhumwa. “In my view, it would make sense,” he added.
Malawi celebrated entry into the New Year with the Kwacha continuing to gain back its lost value. This followed happy news from Malawi’s central bank that the country’s import cover has risen to above the three months. Three months import cover is the minimum threshold for measuring the health of an economy.
Reserve Bank of Malawi spokesperson, Mbane Ngwira, confirmed this week that the country is now sitting on foreign exchange reserves exceeding 3 months of import cover.
Ngwira added that his institution expects the kwacha to continue gaining ground until the tobacco market opens in April.
Tobacco exports remain the country’s highest foreign exchange earner.
Ngwira attributed the developments to the tightening of the monetary policy through interest rates and the liquidity reserve ratio (LRR). Besides, he said, Malawi sold a government debt to the PTA Bank which, according to him, brought into the economy about US$200 million.
“This [PTA facility] has helped improve the forex situation,” said Ngwira.
The development has seen Malawi’s official foreign exchange reserves rising to US$586.11 or 3.07 months of import cover. Private Sector reserves, on the other hand, were recorded at US$345.13 or 1.81 months of import cover on December 24 from US$477.67 million or 2.5 months as at November 14, 2014, resulting into the subsequent appreciation of the kwacha against the green buck in recent days which was yesterday selling at around K471 to the dollar from about K520 by early November.
This is the first time in many years that the country’s foreign exchange levels have risen this high.
RBM recently increased the monetary policy rate to 25 percent from 22.5 percent and directed that the LRR on forex be met in kwacha and not in foreign currencies.
Ngwira said it is the indirect interventions by the central bank on the market that have resulted in the achievement of an improved forex position and appreciation of the kwacha.
“When the kwacha was depreciating, we tightened the monetary policy. We said we would not directly intervene in the market by pumping in dollars like others suggested. We also increased interest rates and mopped up excess liquidity,” explained Ngwira.
He said, however, that although the much sought after 3 months of import cover has been attained, authorities were not satisfied and want to make sure that the reserves grow even further to a level that would make the economy withstand any significant shocks.
Ngwira said with tobacco sales set to start in March or April, the monetary authorities are confident of building an even healthier reserve level in the coming months. He said with tobacco market pre-financing expected in January and February, there are good signs of a further improvement in the official forex position.
“We are looking at a more stable currency in the coming months,” said Ngwira.Follow and Subscribe Nyasa TV :