Malawi’s central bank has just announced a bold move to boost its economy, revealing a 30% devaluation of the local kwacha currency against the US dollar. In a notice sent to authorised dealer banks, the devaluation will set the new exchange rate at 1,700 kwachas to the dollar, a significant shift from the previous rate of approximately 1,180 kwachas.
This isn’t the first time Malawi has taken such a drastic step. The country had previously devalued its currency in May 2022, a strategic move aimed at shoring up foreign currency reserves, which were under pressure from soaring commodity prices and a decline in revenue from tobacco exports.
The central bank’s notice highlighted the necessity of this move due to persistent supply-demand imbalances in the currency market, coupled with the resurgence of arbitrage opportunities. The adjustment aims to address these challenges and promote stability.
While a spokesperson for the Central Bank was not immediately available for comment, the notice assured that the Reserve Bank of Malawi would be vigilant in monitoring market developments to prevent disorderly behaviour and excessive volatility among market players.
Interestingly, the market seems to be adapting to the new exchange rate, with spot checks indicating that import bills are being settled successfully. However, a senior local banker emphasised that this move is a short-term fix that primarily tackles the demand side of the equation, stressing the importance of addressing issues on the supply side for a more sustainable solution.
As Malawi takes this significant step to navigate economic challenges, the financial world will be watching closely to see how this move shapes the country’s economic landscape in the days to come.
By Eve Waruingi.