Weekly Developments in Financial Markets 08

FINANCIAL MARKETS DEPARTMENT

WEEKLY DEVELOPMENTS IN THE FINANCIAL MARKETS

(08 – 12 NOVEMBER 2021)

Main highlights

Gross official foreign exchange reserves decreased by US $ 7.7 million to close the review week at US $ 398.56 million, which is sufficient to cover 1.59 months of imports.

The Kwacha continues to perform against the currencies of major trading partners given the lean season. The Kwacha closed at 822.8035 K to the US dollar on 12e November 2021.

Liquidity conditions on the domestic money market remain very tight with the daily average excess reserves of commercial banks, before borrowing from the central bank, with a negative average of K 94.5 billion per day during the exam week.

Tense liquidity conditions in the banking system continue to affect subscriptions and allocations on the primary market for Treasury securities. The government has lifted about half of the planned issuance in the primary treasury bill market and insignificantly in the treasury bill market.

Inflation accelerated more than expected in October, driven by higher food and fuel prices. Headline inflation has reached

9.8%, compared to 8.9% in September 2021 and 7.5% in October 2020.

International oil prices have stabilized after sharp swings in the outlook for increased oil supply. Crude oil prices fell 0.8% to US $ 82.17 per barrel in the week ending 12e November 2021.

Gross official foreign exchange reserves decreased by US $ 7.7 million to end the review period at US $ 398.56 million, which is sufficient to cover 1.59 months of imports. This is compared to a drop of US $ 3.44 million recorded in the previous week.

Supply in the retail foreign exchange market improved, but remained weak relative to demand ADBs buying on the market a total of US $ 26.47 million compared to US $ 21.3 million recorded during the week ended 5e November 2021.

The Kwacha generally continues to perform against the currencies of major trading partners during the lean season. The Kwacha lost 0.04% (29 tambala) against the US dollar to close the review week at 822.8035 K to the US dollar. Likewise, the local unit lost 0.60% (35 tambala) in value against the South African rand. On the other hand, during the same period, the Kwacha gained 1.07% (K12.72) and 1.38% (K14.61) in value against the British pound and the euro, respectively.

So far, almost midway through the fourth quarter of 2021, the Kwacha has lost only 0.08% (64 tambala) against the US dollar., 0.24% (K2.84) against the pound, 1.82% (K18.68) against the euro and 0.40% (K24 tambala) against the rand. This year up to 12e In November 2021, the Malawian Kwacha depreciated 6.5% against the US dollar.

In sub-Saharan Africa, currencies showed mixed performance. The Tanzanian shilling has depreciated 7.8% so far this year, while the Nigerian naira has weakened 7.1% against the US dollar. In contrast, the Zambian kwacha appreciated 18.4% against the US dollar, while the Angolan Kwanza appreciated 7.5% against the dollar.

Liquidity conditions on the domestic money market remained very tight, while recording an improvement as illustrated by the increase in daily excess reserves of commercial banks, before borrowing from the central bank, at an average of minus K94.5 billion per day of less than K109.2 billion per day recorded during the week ended 5e November 2021. As a result, the resources available in the interbank market have increased and borrowing from the central bank, as a last resort, has decreased. The volume of interbank exchanges increased to K 22.7 billion per day compared to

14.9 billion K per day observed during the previous week while access on the Lombard facility fell to 105.9 billion K per day against 118.8 billion K per day.

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

The central bank’s total operations with commercial banks were expansionary during the review week, injecting a net amount of about K18.6 billion into the banking system. Liquidity injections were recorded for the central bank’s foreign currency purchases on the market (K 4.1 billion), public cash deposits with commercial banks transferred to the central bank (K 10.0 billion ), the purchase by the OMO of

Treasury securities (K4.0 billion), and net commercial bank borrowing from the central bank on the Lombard facility (K4.7 billion). In contrast, government operations, dominated by the net issuance of Treasury securities, withdrew K 4.4 billion from the banking system.

The tightening of liquidity conditions in the banking system continues to affect subscriptions and

allocation on the primary market of Treasury securities. A total of about K21.5 billion was raised in the primary markets for Treasury bills (K 0.1 billion) and Treasury bills (K 21.3 billion) against a planned issuance of K 62.0 billion. The planned allocation / issue ratio was 0.78% for Treasury bills and 47.41% for Treasury bills with all offers accepted.

Cumulatively over the 2021/22 financial year, the ratio of allocation of Treasury securities to planned issues has fallen to 43.44% 44.44% while the allocation / subscription ratio rose from 86.92% to 87.86%.

Inflation accelerated more than expected in October 2021, driven by rising food and fuel prices. Headline inflation jumped to 9.8% from 8.9% in September 2021. Food inflation, which contributes almost half of the consumer price index (CPI), climbed to 11 , 8%, compared to 10.9% in September 2021. Inedibleinflation rose to 7.8% from 7.2% in September 2021. The transport component of inflation rose slightly to 12%, from year to year,by far the biggest contributor.

In the sub-Saharan Africa region, inflation developments have been mixed. In Angola, inflation climbed for the seventh consecutive month to 26.9% in October 2021, its highest level since July

2017. Inflation in Mozambique accelerated for the third consecutive month to 6.4%, from 6.0% the previous month, mainly driven by food prices. Inflation in Botswana accelerated to 8.8% in October, from 8.4% in September 2021. In Ghana, inflation accelerated for the fifth consecutive month to 11.0% in October 2021, against 10.6% in September 2021. This is the highest level of inflation since July 2020. In contrast, inflation in Zambia slowed to 21.1% in October 2021, against 22.1% in September 2021. Inflation in Nigeria fell for the seventh consecutive month to 15.9% in October 2021, from 16.63% the previous month. Inflation in South Africa stood at 5.0%, unchanged from the previous month. Inflation in Tanzania stood at 4.0% in October 2021, unchanged from the previous month.

International oil prices have stabilized, after sharp swings in expectations for increased oil supplies. Crude oil prices were at US $ 81.52 per barrel. OPEC +, a group made up of OPEC, Russia and other countries, has maintained an unprecedented restraint on production, even as prices have rebounded from the depths of the early stages of the coronavirus pandemic. Oil prices have reached a multi-yearpeak of US $ 86.70 per barrel in October 2021, its highest level since October 2018.

Disclaimer

Reserve Bank of Malawi published this content on November 19, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on November 19, 2021 04:23:06 PM UTC.

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