The Reserve Bank of Malawi (RBM) has announced that it will reject bids from authorized dealer banks (ADBs) during a recent foreign exchange auction, which will keep the Kwacha stable for the remainder of January. The central bank uses foreign exchange auctions to discover a prevailing market clearing exchange rate for the Kwacha against major currencies, with the goal of promoting transparency in determining exchange rates.
However, only three out of eight ADBs participated in the auction, leading RBM Governor Wilson Banda to state that the results cannot be used to determine the official exchange rate. Financial analysts have criticized the rates quoted by ADBs during the auction.
In a statement, Banda said, “The Reserve Bank of Malawi wishes to inform the general public that during the pilot Foreign Exchange Auction held on Friday, 13 January 2023, only three of the eight authorized dealer banks (ADBs) participated. Consequently, these results cannot be used to determine the official exchange rate as they may not be representative of the sentiments of the entire banking system.”
The Financial Market Dealers Association President, Leslie Fatch, commented on the development saying, “the dealers would wait for RBM’s direction on the matter.”
The Malawi economy requires approximately $250 million every month to meet import needs. This decision by RBM to reject bids from authorized dealer banks is expected to bring stability to the Kwacha, at least for the rest of January.