An outlook of the performance of the economy going into the second quarter of 2018 done by Alliance Capital Limited, in association with Vunani Limited, points to continued stability of the exchange rate against the United States dollar, with a likelihood of appreciation.
However, Alliance Capital has also indicated that there are upside risks to other key fundamentals such as inflation, which is likely to go up following an anticipated rise in utilities and domestic fuel prices.
Elevated consumer spending associated with agricultural marketing season is also being seen as a potential risk factor.
Going forward, Alliance Capital has suggested that monetary authorities should exercise caution and be watchful of any changes in macroeconomic fundamentals.
“We, therefore, expect the bench mark interest rate to remain where it is for the next few months leading to the next Monetary Policy Committee meeting,” the report reads.
The firm says it also expects liquidity management operations to heighten with elevated economic activity as the economy picks up pace on account of the agricultural marketing season.
“We expect interbank money market rates to track the policy rate on account of Reserve Bank of Malawi open market operations, however with a downward bias. We expect fiscal operations to slightly rise, which will, in turn, slightly harden yields on government securities,” the report says.
The first quarter of 2018 saw many key fundamentals soldiering on a positive trajectory.
The kwacha, for instance, largely remained stable to the green buck. Against the pound sterling and the rand, the local unit was volatile, however with a depreciating bias.
The local unit made some gains in February after the pound sterling weakened following the gaining of the dollar on the global forex market, coupled with the bank of England’s interest rate announcement.
According to Alliance Capital, overall, the kwacha weakened by 4.2 percent in the quarter against the sterling after opening at K979.46 and closing at K1,020.86.
Against the rand, the kwacha closed at K61.83 percent weaker, after opening the quarter at K58.85.
“The rand’s pick up in the quarter is largely attributed to improved market sentiment with the coming in of a new government following Jacob Zuma’s resignation and the subsequent improvement in the political climate,” the report reads.
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