Weekly Developments in Financial Markets September 27

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FINANCIAL MARKETS DEPARTMENT

WEEKLY DEVELOPMENTS IN THE FINANCIAL MARKETS

(SEPTEMBER 27 – OCTOBER 01, 2021)

Main highlights

Bank, negative average of K73.2 billion

during exam week.

International oil prices have hit a record high for several years, as gold prices have fallen on the strength of the strengthening US dollar. Oil prices have risen recently, amid a global shortage, after a period of demand uncertainty induced by Covid.

Official foreign exchange reserves, held by the Reserve Bank of Malawi, declined to close the review week at US $ 471.1 million (1.88 months of imports) of US $ 537.7 million (2.15 months of imports) recorded on 24e September 2021.

The Malawi Kwacha appreciated against the US dollar, British pound and South African rand, but depreciated against the euro. The Kwacha performed similarly in September 2021 and in the third quarter of 2021, where it only depreciated against the US dollar and appreciated against other currencies. The Kwacha, however, remains significantly lower in value against all of the currencies mentioned above compared to positions at the end of last year.

Kwacha liquidity conditions remain very tight in the banking system with the daily excess reserves of commercial banks, before borrowing from the central

Public securities remain subscribed. Cumulatively in fiscal year 2021/22, the government was only able to source just over 40% of the target amount in the domestic debt market, reflecting the impact of the continued tightening conditions. cash.

International oil prices hit their highest level since 2014, supported by OPEC + ‘s refusal to increase production. Oil prices hit US $ 79 per barrel on the 6the October 2021. Meanwhile, gold prices fell 0.5% to US $ 1,750.51 an ounce, while US gold futures fell 0.7% to US $ 1,749.40. The dollar rose to a ten monthspeak, lifted by a surge in Treasury yields, reducing the attractiveness of gold to those who hold other currencies.

Domestically, official foreign exchange reserves held by the Reserve Bank of Malawi (RBM) lost US $ 66.6 million to close the review week at US $ 471.1 million (1.88 months imports). The loss of reserves represents a reduction in the central bank’s liabilities.

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Supply in the retail forex market has now declined for five consecutive weeks, illustrating the general seasonal pattern seen in recent years. During the period under review, purchases of authorized distribution banks in the market amounted to US $ 22.5 million, compared to US $ 26.4 million and US $ 27.2 million recorded during the period. week ending 24e and September 17e September 2021, respectively. This suggests high imbalances between supply and demand, which is a typical result of the lean season, and should continue to negatively affect the stability of the Kwacha.

During the review period, despite increasing depreciation pressure, the Malawian kwacha appreciated against most of the currencies of major trading partners. The Kwacha gained 0.28% (K2.33) against the US dollar to settle at K821.06 per US dollar. The Kwacha also gained 1.94% (K22.73) against the British pound and 2.05% (K1.20) against the South African rand. The local unit nevertheless lost 2.81% (K29.88) against the euro.

The Kwacha’s performance during review week somewhat mimics the local currency performance of September 2021 and Q3 2021, where it won against the pound, euro and rand and lost value against the US dollar. Suffice it to note that the depreciation against the US dollar in September 2021 at 0.24% (K1.95) was the lowest since July 2020 and in the third quarter of 2021 at 1.24% (K10.22) was the most low since the second quarter of 2020.

Cumulatively, this year until 1st October, the Malawian Kwacha depreciated against all currencies of major trading partners, losing 6.2% (K30.77) in value against the US dollar, 7.0% (K30.66) against the pound, 7.2% (K71.40) against the euro and 4.1 % (K2.75) against the rand.

Liquidity conditions on the domestic money market remain limited, with the daily excess reserves of commercial banks, before borrowing from the central bank, a negative average of K 73.2 billion during the period under review against K 87.1 billion negative recorded during the week ended 24e September 2021. The liquidity shortage was reflected in the Lombard loan window, where banks borrowed an average of K 84.7 billion during the week under review, although down from the 100, K 9 billion recorded the previous week. Interbank market trade fell to K16.8 billion on average per day from K18.5 billion per day recorded during the week ended 24e September 2021.

Reflecting the tightening of liquidity conditions, the IBR remained stable and closely aligned with the key rate at 11.98% since the third week of August 2021 [except on two occasions when it lost a basis point]. Therefore, the IBR remains in the target corridor of + 0.2 / –

4.0 percentage points around the policy rate as desirable in the inflation targeting framework the central bank is moving towards.

During the review week, the central bank’s total operations with commercial banks were down, removing a net amount of about K 13.8 billion from the banking system. The liquidity withdrawals were due to the state’s primary surplus of 7.2K

billion, central bank commercial bank net foreign exchange withdrawals to meet customer demands as expected towards the end of the month totaling K17.8 billion, and central bank net foreign exchange transactions totaling K 1.1 billion These withdrawals were partially offset by injections from the net maturity of Treasury securities and net open market operations via net access to the Lombard facility for respectively 3.6 billion of K and 8.7 billion K.

The government continues to under-allocate compared to planned issuance at auctions of Treasury securities in fiscal year 2021/22 amid a persistent shortage of liquidity that often raises pricing issues. The government raised a total of K 12.6 billion in the primary market for treasury securities through treasury bills (K 8.8 billion) and 10 yearsTreasury bill (K 3.7 billion). The allocation of treasury bills was against the planned issuance of K16.1 billion and the subscription of K12.5 billion while the allocation of treasury bills was against the planned issuance of K16.3 billion and the subscription of K5.8 billion. This represents an allocation to planned issue ratio of 54.72% for Treasury bills and 22.90% for Treasury bills as well as an allocation to subscription ratio of 70.20% for government bonds. Treasury and 64.79% for Treasury bills. Cumulatively over the 2021/22 financial year, the allocation of Treasury securities amounts to 84.77% of subscriptions and 41.39% of planned issues.

Disclaimer

Reserve Bank of Malawi published this content on 08 October 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 08 October 2021 03:01:04 PM UTC.

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