The Reserve Bank of Malawi (the Bank) has today 7 May 2012 devalued the Malawi kwacha exchange rate from K168 to K250 per United States dollar. At K250 per dollar the exchange rate is well adjusted as the black market is certainly under-devalued. Following this devaluation, the kwacha is now fully liberalized.

The Bank stands ready to support this exchange rate adjustment using all available monetary policy instruments. In this context, the Monetary Policy Committee meets today, 7 May 2012 to review the monetary policy stance.

The Bank has taken steps that should improve the availability of foreign exchange in the market by transferring United States dollars earned at the tobacco auction floors to the commercial banks. Furthermore, the Bank has also allowed tourists to settle their local bills in any convertible foreign currency or in Malawi kwacha by selling foreign exchange in the market.

The devaluation of the kwacha is further expected to have the effect of reducing demand for imports of consumer goods in favour of domestically produced goods. Most importantly, it should also, together with the liberalisation of foreign exchange market, contribute to government’s efforts to reach early agreement with the IMF which should leading to unlocking donor flows in the next few months.

Existing exporters, including sellers of tobacco at the auction floors, should benefit from the devaluation through increased earnings. Furthermore, the smuggling of products, including tobacco, across the borders in search of better prices is likely to be reduced.

For a long time, due to scarcity of foreign exchange, businesses were forced to source foreign exchange from the black market. As a result, most commodity prices already reflect the black market rate. It is therefore expected that this devaluation should not trigger additional price increases.

Notwithstanding this devaluation, the Bank remains committed to its overarching objective of price stability in the medium to long term.

C.S.R. Chuka, GOVERNOR