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Malawi devalues kwacha by about 30% amid dollar crunch

Daba Finance/Malawi devalues kwacha
BREAKING NEWSNovember 9, 2023 at 1:25 PM UTC

Malawi’s central bank said in a notice to authorized dealer banks seen by Reuters that it was devaluing the local kwacha currency’s exchange rate to the dollar by about 30% from Thursday. The notice said the kwacha’s exchange rate would be adjusted to 1,700 kwacha to the dollar from a selling rate of about 1,180 kwacha to the dollar.

The exchange rate adjustment was needed because there were still supply-demand imbalances in the currency market and arbitrage opportunities had resurfaced. Spot checks on some players indicated that the market was able to clear import bills at the new exchange rate, the central bank said.

“The Reserve Bank of Malawi will closely monitor developments in the market to avoid disorderly behavior among market players that may cause excessive volatility,” it said.

Key Takeaways

It is the second time the southern African country has significantly devalued its currency, after doing so first in May 2022 to prop up dwindling foreign currency reserves pressured by rising commodity prices and declining revenue from tobacco exports. As it stands, the currency is now worth two-thirds less than it was at the start of the year. This year, Most sub-Saharan African currencies have weakened against the US dollar, fanning inflationary pressures across the continent as import prices surge. The depreciations and devaluations across the region were mostly driven by external factors. Lower risk appetite in global markets and interest rate hikes in the United States pushed investors away from the region towards safer and higher-paying US treasury bonds. This, together with a growth slowdown, leaves policymakers with difficult choices as they balance keeping inflation in check with a still-fragile recovery.

Malawi
Kwacha
Currency devaluation
USD
Foreign Exchange

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