The country’s falling foreign reserve situation continues to exert pressure on exchange rate, as the local currency weakens against the US dollar.
Since the closure of the tobacco selling season in September last year, the forex supply declined and the reserves started to drop recording $565.1 million.
This is worth 2.7 months of imports in December 2020.
A recent economic report by NICO Asset Managers has since stated that the Malawi Kwacha depreciated against the US dollar in January due to a decline in foreign exchange supply.
The Malawi Kwacha depreciated against the United States Dollar in January 2021, due to a decline in foreign exchange supply which in turn, put pressure on the country’s foreign exchange reserves.
During the lean season, there has been less gross official and private sector reserves flowing into the market.
This has increased the burden on the Central Bank of Malawi to support the foreign exchange market with liquidity to help either in smoothening the rate of depreciation or payment.
Furthermore, the pressure on the Kwacha has been worsened by the reduced trading activity in the view of the COVID-19 pandemic which resulted in lower-than-expected export earnings amidst the growing demand for COVID-19 related imports and seasonal agriculture materials.
For instance, the dollar was selling at K777 in December 2020 but the local currency weakened in January to trade at K780 by month end.
Currently, the pressure is seemingly persisting as the Kwacha continued depreciating this month trading at K784 today.
However, the report notes the rate of depreciation is projected to moderate by increasing foreign investment inflows and earnings from the agricultural sector.
It further shows that this will definitely be like that because the economy is now past the period of high demand of forex as most of the Affordable Input Program importations have already been distributed.