Malawi: Kwacha devaluation causes panic

However, local economic experts have said there is no direct link between the recent floatation the interest and inflation rates movement.

Reserve Bank Governor Dr. Perks Ligoya told news conference in Lilongwe that authorities adopted a principle of flexibility in managing the exchange rate to allow the kwacha to float within a defined zone.

Government, which has been under intense pressure to devalue the kwacha last week gave in and floated the local currency, which has been stable against the US dollar to which it was pegged for a period of four years.

With the floatation, the Kwacha has now moved from K140 per dollar to K144.

The Malawi Confederation of Chambers of Commerce and Industry (MCCI) however, still thinks the devaluation should have gone down further more.

“The Kwacha could have been devalued further to match the parallel market rate where the currency is trading as high as at K180 to a dollar,” said MCCI president Harrison Kalua.

Economics Association of Malawi (ECAMA) as well as economic experts from the University of Malawi have said the devaluation will have no impact on inflation and interest rate.

According to the National Statistical Office (NSO), Malawi's inflation rate is currently at 7.5 % and has been going down since January while the interest rate was last revised from 21 % to 15 % in November 2007.