EXCHANGE RATES
The current developments with local exchange rates provide a glimmer of hope for Malawi's volatile currency. The currency that has persistently been weakening against its major trading partners vis-à-vis the US Dollar (USD), South African Rand (ZAR) and the Zimbabwe Dollar (ZWD) seems to be gradually overcoming the pressures of the same.

The USD/MKW rate experienced a decline after some weeks of stability at around 1/80.5 (refer to graph below). The Kwacha is currently trading at about 79.5465 against the Dollar. This rate should be expected to either stabilise or decline a bit more, as some of the factors that contributed to the volatility of the Kwacha, such as speculation, have virtually been eliminated.

One of the least mentioned factors attributed to the Kwacha's firming against the Dollar is the recent economic slowdown in the United States of America, with speculation of a full-blown recession rife, amidst soft US consumer confidence. There is also what is being termed as 'aggressive' Federal Reserve Bank interest rate cuts, targeted to reverse this trend in the US economy, which if not successful could lead to further strengthening of the Kwacha against the Dollar.

Also central to the firming of the Kwacha are the high local currency interest rates that keep it afloat at the current exchange levels.

The effects of a stabilised currency on the stock market have been quickly noticed, as a stable currency provides a fillip for equity markets. The last quarter of the year 2000 saw the Malawi stock market underperforming due to the Kwacha volatility coupled with high Treasury Bill yields, which kept a lot of investors out of the market. Confidence in the stock market is now revived as evidenced from the increased trading to 68 trades from below 40 trades during the past few weeks.

The market should not expect the weakening of the Kwacha during the period July-September, 2001 to be the same as last year where it fell by 31.8%, 24.8%, and 1.2% during a three month period against the USD, ZAR and ZWD respectively. With the much-talked-about debt relief, the USD demand for debt payments will decrease, easing the pressure on the currency. And the foreign reserve position looks likely to benefit from this. Also the Reserve Bank of Malawi (RBM) appears to be attempting to reduce the money stock by offering foreign currency at competitive market rates, further reducing the pressure on the Kwacha.

On the regional scene, the MKW has firmed against both the ZAR and the ZWD by slight margins. Against the ZAR, it traded 10.8271 at the beginning of this month, and 1.6041 against the ZWD; it is now at 10.571 and 1.6031 against the ZAR and ZWD respectively. The case with the ZAR is in part due to economic developments in USA that have impacted on the South African economy. The other factor is that the South African is very sensitive to some if not all developments in the political arena. At one time during the period of Nelson Mandela's leadership, the value of stock dropped and the currency lost considerable value when news about Head of State Mandela's illness reached the market. The current corruption scandals implicating influential political leaders may have the same effects on the economy, eroding investors' confidence resulting in the pulling out of capital and subsequently the loss of value of the Rand.

INTEREST RATES
The next auction of Treasury Bills will confirm the expected decline in the bank rate. As can be observed from the T-Bills chart below, the yields have all started falling and this suggests a corresponding fall in interest rates.

The last published RBM's bank rate was when it was at 61.29%. Since then the bank rate effectively went up to 75% but this was not published. However we should expect official notification when the rate drops below the previously published rates.