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Market Report Fortnight ending 28th March 2003 Report
06/03
The Malawi Kwacha Exchange Rate
The opening of the tobacco season a fortnight ago is
yet to improve the foreign exchange situation in the
economy. An improvement in the forex position could
dumpen the pressure on the exchange rate as it could
reduce speculation tendencies that play a role in determining
the direction of the exchange rate. This being the case,
the Kwacha is currently depreciating against the USD
The opening of the Limbe auction floors were characterized
by boycotts by sellers who were not satisfied with the
initial level of prices buyers were offering for the
leaf. This saw the suspension of sales from the previously
announced opening day of Monday 10th March 2003 to Thursday
13th March 2003.
The opening of the floors in March instead
of April as has normally been the case, caught farmers
unawares and this has inevitably led to sluggish selling
activities at the auction floors. The initial stages
of tobacco sales are dominated by the offer of lower
leaf, which attracts low prices.
The three-day suspension of sales at the Limbe auction
floors; low levels of supply and low prices associated
with lower leaf have played a role in derailing the
much-needed build up of the country’s foreign
exchange reserves. This has witnessed the Kwacha depreciating
against the U.S. Dollar after showing signs of stability
during the previous fortnight. Currently, the Kwacha
exchange rate has soared to a market average of MWK91.6512
to the Dollar from an average of MWK90.8493 registered
at the close of the preceding fortnight.
This outturn, however, is unfortunate
in that it will frustrate government efforts to stabilize
the economy. The economy registered a significant decline
in the inflation rate to 10.7 percent in January 2003
from 20.2 percent in January 2002.
The current dismal performance of the Kwacha exchange
rate could worsen following developments in Zimbabwe.
The severe scarcity of foreign exchange which has hit
Zimbabwe has necessitated the devaluation of the ZWD
with a view to bring the official exchange rate closer
to the parallel rate. The official exchange rate has
been devalued to ZWD800 from ZWD55 to the US Dollar
while the parallel rate is as high as ZWD1500. This
could translate into further depreciation of the Kwacha
if Malawi is to maintain its competitiveness with Zimbabwe
in trade.
Financial Markets and Interest Rates
The persistent fiscal budgetary imbalances rocking
the economy is gradually translating into rising interest
rates on the money market. During the auction of Treasury
Bills conducted on 21st March 2003, the Treasury increased
the required amount to a record high of K1500 million
after maintaining it at K1000 million during the past
two auctions.
average of 38.17% registered during the
auction held on 14th March 2003. Similarly, yields for
the 91 days and 182 days bills increased to 37.20% and
38.62% from respective rates of 37.14% and 38.12%.
And according to the results of sales
of RBM Bills held on 18th March 2003, the yield rate
for the 91 days bill increased further to 37.09% from
36.91% recorded on 11th March 2003. On the other hand,
the rate for the 63 days bill contracted to 36.83% from
36.93% registered a week before.
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