Weekly Developments in Financial Markets 04

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FINANCIAL MARKETS DEPARTMENT

WEEKLY DEVELOPMENTS IN THE FINANCIAL MARKETS

(04 – 08 OCTOBER 2021)

Main highlights

Gross official foreign exchange reserves, held by the Reserve Bank of Malawi, decreased by US $ 3.0 million to close the review week at US $ 468.1 million, which was sufficient to cover 1.87 months of imports.

During the review week, fluctuations in the Malawian Kwacha exchange rate against the US dollar, British pound, South African rand and euro partially offset

corresponding movements of the previous week. The Kwacha closed at 822.7969 K to the US dollar on 8e October 2021.

Kwacha liquidity conditions in the banking system improved somewhat, but remained tight, with the daily excess reserves of commercial banks, before borrowing from the central bank, a negative average of K 58.5 billion during the exam week.

Government securities have been oversubscribed but remain under-allocated to each auction compared to the issue scheduled for fiscal year 2021/22 due to pricing issues. Cumulatively in fiscal year 2021/22, the government succeeded in securing 42.3% of the target amount of domestic debt

market, reflecting the impact of still tense liquidity conditions and pricing concerns.

International oil prices have settled comfortably above the US $ 80 mark, reflecting growing demand. Oil prices have risen in recent weeks as demand continues to outstrip supply. Meanwhile, gold prices continued to rise, trading at US $ 1,759 per ounce.

The International Monetary Fund (IMF) has downgraded its global economic forecast, reflecting the impact of the Covid-19 pandemic. The global economy is expected to grow 5.9% this year, up from 6% forecast in July, before slowing to 4.9% in 2022.

Gross official foreign exchange reserves, held by the Reserve Bank of Malawi, declined by US $ 3.0 million to end the review period at US $ 468.1 million, sufficient to cover 1.87 months of imports. . This is compared to a drop of US $ 66.6 million recorded in the previous week.

Supply in the retail foreign exchange market increased slightly but remained weak relative to demand. Authorized Distribution Banks (ADBs) bought a total of US $ 23.1 million in the market, compared to US $ 22.5 million in the week ended 1st October 2021.

During the period under review, movements of the Kwacha against the currencies of major trading partners partially offset the corresponding movements recorded during the previous week. The Kwacha lost 0.21% (K1.73) against the US dollar to settle at K822.7969 per US dollar after gaining 0.28% (K2.33) the previous week. Likewise, the Kwacha lost 0.78% (K9.10) against the British pound after 1.94%

(K22.73), lost 0.58% (34 tambala) against the South African rand after gaining 2.05% (K1.20) and gained 2.72% (K28.95) against the euro after a loss of 2.81% (K29.88).

Cumulatively, this year at 8e In October, the Malawian Kwacha depreciated against all currencies of major trading partners. The local unit lost 6.43% (K32.50) in value against the US dollar, 7.86% (K39.76) against the pound, 4.30% (K42.45) against the euro and 4.74% (K3.09) vs. the Rand.

Liquidity conditions in the domestic money market improved further during the week under review, but remained tight. Daily excess reserves of commercial banks, before borrowing from the central bank, on average K58.5 billion negative against K71.4 billion negative recorded during the week ended 1st October 2021. The recourse of commercial banks to the central bank, as a last resort, has hardly changed since access to the Lombard facility amounted on average to 82.1 billion K per day against 82.9 billion K per day recorded the previous week. Exchanges on the interbank market increased to K 17.3 billion on average per day compared to K 16.8 billion per day observed during the week ended 1st October 2021.

The IBR remained stable and closely aligned with the policy rate at 11.98 percent. Thus, the IBR continues to be located in the target corridor of + 0.2 / -4.0percentage points around the key rate.

During the review week, the central bank’s total operations with commercial banks were expansionary, injecting a net K19.2 billion into the banking system. Government operations were the main provider of liquidity, injecting K 45.4 billion. Customer deposits in commercial banks injected an additional K 1.3 billion into the banking system. These injections were partially offset by withdrawals on net issues of Treasury securities for an amount of K 4.0 billion, net foreign exchange transactions of the central bank for K 1.6 billion and net transactions of open market (OMO) which amounted to K 21.8 billion. The net OMO includes the net maturity of the Lombard facility of K 14.2 billion and the maturity of the repurchase agreements at K 7.6 billion. K.

For the second time in fourteen weeks of auctions during fiscal year 2021/22, the government received sufficient subscriptions on the primary market for Treasury securities compared to the planned issues, but under-allocated due to problems of price. The government raised a total of K 7.3 billion on the primary treasury bill market against

subscription of K 12.4 billion and planned issue of K 8.2 billion. This represents an award-to-subscription ratio of 59.0% and an award-to-issue ratio of 89.3%. The majority of the award, at 98.7%, was for 364 days. The above improved the cumulative allocation ratio of Treasury securities on the issuance planned during fiscal year 2021/22 to 42.3% from 41.4%, but reduced the cumulative allocation ratio of 83.3% subscription versus 84.8%.

Meanwhile, the government has just announced its intention to raise KK 397.6 billion through Treasury securities from October to December 2021. The issuance schedule has been posted on the Reserve Bank of Malawi’s website and contains a planned second issuance of infrastructure development bonds.

International oil prices have stabilized above the US $ 80 per barrel mark, reflecting the recovery in demand. Oil prices have risen in recent weeks as demand continues to exceed supply due to a faster than expectedeconomic recovery in developed countries. Rising oil prices have raised concerns that headline inflation may accelerate and hamper global economic recovery.

Disclaimer

Reserve Bank of Malawi published this content on October 14, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on October 14, 2021 11:11:02 AM UTC.

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