Reserve Bank of Malawi (RBM) spokesperson Ralph Tseka has said much as it is a floating exchange rate regime determined by the market forces, the central bank is managing the currency by intervening at times.
“It is a managed float because we manage it by tight monetary policy. That is to say, how we control money supply in the system. Another example is when we took away fertiliser and fuel procurement from the market,” Tseka explained to The Nation newspaper.
Tseka said such withdrawals to buy fertiliser and fuel were huge specifically done to manage the exchange rate.
“If procurement of fertiliser and fuel had not been taken from the market, where would the exchange rate be at this time if it was a free float?,” queried the RBM official, dispelling fears that RBM adopted a free-floating exchange rate regime.
Malawi devalued the kwacha by 49 percent last year.
Last week, the kwacha moved beyond the K400 mark, with the unit trading at K405 and K407 to a dollar at Indebank and National Bank of Malawi respectively as of Sunday an indication that the market is deficient of hard cash to support the currency even when tobacco dollars are trickling in.
According to The Nation report, managed float is variation on the free float mechanism. Many countries use the float system to determine the rates of exchange. Under this regime, central banks intervene and help to set the exchange rates by trying to smooth out the fluctuations and volatility of the currencies.
Figures indicate that foreign currency reserves have fallen to 0.92 months of import cover as at March 15 2013, which is below $188.1 million [one month’s reserves] against the internationally recommended three months worth of import cover [$564m], the paper reported.