Investor confidence keeps kwacha strong
BY GERALD NAMWAZA
09:54:36 - 11 July 2007
OOZING confidence in the current economic fundamentals has helped to stabilise the kwacha against major foreign currencies, a local business captain has said.
This has torn apart theories that government through Reserve Bank of Malawi (RBM) was manipulating the local currency against foreign currencies to suit its social political agenda.
But with interest rate down to 20 per cent from 30 percent in 2004, inflation in single digit and the kwacha is stable, analysts say investors are all smiling.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) yesterday attributed the stability to positive attitude prevailing in the business community than booming foreign reserves.
The kwacha has stood its ground against the US$ and Tuesday was sold at 141 to the greenback in most banks, 143 on the parallel market was just above 145 on the black market.
“There is a lot of psychology involved in exchange rate, when people see that economic fundamentals are improving, exchange rate can stabilise---this is what is happening in Malawi,” said Chancellor Kaferapanjira MCCCI chief executive.
He said that proceeds from tobacco, although slightly higher than last year, would not cushion the currency.
“The quantity of the crop is 30 per cent lower than last year and we wouldn’t expect a lot from the traditional forex earner, but donor confidence and a slow down on demand for foreign currency is cushioning the currency,” Kaferapanjira said.
He said when the private sector is not sure about the economy it hoards foreign currency and this causes unnecessary shortages on the market.
“This is not the case now because each time you go to the bank to ask for foreign currency you get it,” Kaferapanjira said.
Minutes of Reserve Bank of Malawi (RBM) 63rd monetary committee says at the end of March this year gross official reserves increased to US$121.8 million from US$91.4 million, representing 1.9 months of import cover.
RBM attributed the increase to purchases of foreign exchange from banks, institutions like Limbe Leaf and inflows from the British Department for International Development (DFID).
The central bank says foreign currency denominated accounts (FCDAs) increased to US$106.1 million at close of March 2007 due to tobacco pre-shipment financing.
When presenting this year’s budget Finance Minister Goodall Gondwe said the kwacha depreciation was contained at less than 10 per cent for the last two years.
“Some have contested that the rate has been artificially kept down and that were we to adopt a policy of a truly flexible exchange rate, the depreciation would have been larger,” Gondwe said.
He argued that the fact that rates at foreign exchange bureaux had stabilised despite their freedom to move rates, was a sign that there was no artificial repression of the rate.