Devaluation benefits to take time-RBM

RBM

Malawians will have to be patient and wait for probably around a year to see the fruits of the decision to devalue the Kwacha, the Reserve Bank of Malawi (RBM) has said.

RBM, on 27th of May 2022, as mandated under the RBM Act of 2018 to manage foreign exchange transactions in the country, devalued the local currency, the Malawi kwacha against the United States dollar by 25 percent.

RBM Governor, Wilson Banda declined at the time when Kulinji.com asked if the devaluation was on the premise of trying to secure the International Monetary Fund (IMF) Extended Credit Facility.

Banda then said the decision was aimed at improving external sector competitiveness.

He explained it was also about aligning the exchange rate with market fundamentals as well as improving the circulation of foreign exchange on the market.

On 16th of August Banda said: "While devaluation comes with an immediate rise in the cost of imported goods, the benefits ordinarily come with a lag, sometimes even up to a year.

"Therefore, the benefits from the previous devaluation have not fully manifested in the economy."

Banda explained a devaluation is ideally supposed to ignite expenditure switching from expensive imported goods towards cheaper goods which are produced domestically.

"The RBM wishes to notify the public that the adjustment was sufficient and has brought the exchange rate to the desired market clearing level.

"Following the realignment, there has been improved flow of foreign exchange which is helping with importation of strategic commodities in the country."

Malawians have been feeling the pinch of the devaluation as the cost of living has sharply risen.

Prices of basic goods and services, among them bread, sugar, maize, fertilizer, transportation, telecommunications have shot up exponentially.

Regardless of the sharp rise in prices, the  earnings of most Malawians have remained the same.

With inflation hovering around 23.50 percent, economists have urged the RBM to tighten the Monetary Policy to curb run away inflation.