Pa Ulendo wa ku Canaan! RBM announces devaluation of Kwacha by 25%

Malawians should brace for more tougher times following an announcement by the Reserve Bank of Malawi that it has devalued the country’s currency by 25% effective Friday, 27 May 2022.

The central bank’s Governor Dr. Wilson Banda has announced of the devaluation through a press statement Thursday, 26th May 2022.

According to Banda, the decision to devaluate Malawi Kwacha by 25% has been arrived at in order to curb arbitrate trading by international brokers and banks.

“Authorized Dealer Banks (ADBs) have faced liquidity challenges stemming from the impact of COVID-19 which saw deteriorating export earnings and increased import bills due to supply chain disruptions,” reads the statement.

Banda further says rising commodity prices following the Russia-Ukraine war, and cyclone Ana and Gombe worsened the situation.

According to Banda, the situation led to low foreign exchange supply, declining official foreign reserves, and widening spread between ADBs Telegraphic Transfer and Bureaux Cash exchange rates.     

What did the Reserve Bank of Malawi do in response to the situation?

The country’s central bank instituted short-term measures which did not work out. The following are some of the measures;

  1.             Continuous interventions in the foreign exchange market in order to support importation of strategic commodities and avoid excessive volatility of the Kwacha exchange rate
  2.            Temporarily introduced mandatory sale of 30% of export proceeds to the Bank within two working days from the date of  receipt, and
  3.         To close arbitrage opportunity arising from the fact that only trads denominated in the US dollar were subject to the reasonable differences on spreads rule.   

What lies ahead?

The central bank has meanwhile highlighted that the devaluation will likely add pressure on inflation but says it is committed to prudent monetary and fiscal policies in order to contain all inflationary pressures within manageable limits.

The devaluation comes at a time when government is in talks with International Monitory Fund (IMF) team for a new Extended Credit Facility to relieve Malawi from the current economic turmoil