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Forex reserves drop normal, says rbm

 

The Reserve Bank of Malawi (RBM) and some economists have said the marginal decline in the foreign exchange reserves is seasonal and a normal occurence on the market.

In recent months, the central bank has maintained a foreign exchange reserves position of about three months of import cover, which is the minimum recommended international threshold, a situation attributed to open market operations—the buying and selling of government securities in the open market to expand or contract money supply.

But for about five weeks now, gross official foreign exchange reserve—which is in the custody of RBM to prop up the kwacha—has declined by about six percent from $767.64 million, an equivalent of 3.67 months of import cover recorded on December 22 2017 to $724 million, an equivalent of 3.47 months of import on January 18, according to RBM.

At the same time, private sector reserves also declined to $391.7 million, an equivalent of 1.87 months on January 12 2018 from $414.03 million, or about 1.96 months of import cover.

But on January 19, the reserves recovered to $408.6 million or 1.96 months of import cover on December 29 2017.

In an interview on Tuesday, RBM director of communications and protocol Mbane Ngwira explained that during this period, businesses are just coming back from their annual holidays; hence, the supply of foreign exchange is normally less than demand.

He said: “During this period, we purchase less from the market than we sell. This position is, therefore, temporal and normalises within the shortest period as businesses return to work.”

Economist Gilbert Kachamba, who is dean of social sciences at Catholic University of Malawi, said there are several factors that may be contributing to this situation, but called for calm as this is just seasonal.

“In this period, there is a decline in exports as this is the growing season and the products that we export much are not yet ready for the market. Another factor is the unquenchable thirst for foreign products which is growing.

“Otherwise, we always move in cycles when it comes to foreign exchange reserves and we are just on one side of the cycle,” he said.

Another market analyst Cosmas Chigwe said the development, although not ideal, is not exactly worrisome as this is the lean period.

In recent weeks, President Peter Mutharika has been bragging about the country attaining six months of import cover, referring to the combined value of private sector and official reserves. n

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