IN a notice addressed to authorised dealer banks, Malawi’s central bank revealed a substantial devaluation of the local kwacha currency against the US dollar by nearly 30 percent, effective from Thursday. This measure is intended to recalibrate the exchange rate, altering it to MK1,700 to the dollar from the previous selling rate of approximately MK1,180 to the dollar.
The central bank’s notice did not provide immediate comment as a spokesperson was not available for further clarification.
This recent adjustment marks the second notable devaluation undertaken by the southern African nation, with the first occurring in May 2022. The primary objective behind these devaluations has been to alleviate pressure on dwindling foreign currency reserves, which have been strained by the surge in commodity prices and diminishing revenue from tobacco exports.
The notice sent to banks highlighted that the revision in the exchange rate was deemed necessary due to persistent supply-demand imbalances within the currency market and the reappearance of arbitrage opportunities.
According to the central bank’s communication, preliminary assessments among various market players indicated the market’s ability to settle import bills at the revised exchange rate.
‘The Reserve Bank of Malawi will closely monitor developments in the market to avoid disorderly behaviour among market players that may cause excessive volatility,’ the central bank stated.
A senior local banker, while acknowledging the move as widely anticipated, voiced the limited scope of this action. ‘It works in the short term and only addresses the demand side for now, but what is required is to sort out the supply side,’ he remarked.
The devaluation decision represents Malawi’s efforts to stabilise its currency and manage economic challenges posed by global market dynamics, but the need for a more comprehensive approach to tackle both supply and demand aspects of the currency market remains an ongoing concern for financial stakeholders and market observers in the country.
