Malawi's central bank scrapped its kwacha peg on Monday and allowed the currency to devalue by 50 percent, heeding calls from the IMF to cut what was seen as an artificially high exchange rate that was hitting the impoverished state's economy.
Commercial banks were selling the kwacha at 250 to the greenback, well above the previous official rate of 165 and close to the black market rate of about 275.
“At 250 per dollar, the exchange rate is well adjusted as the black market is certainly under-devalued. Following this devaluation, the kwacha is now fully liberalised,” the Reserve Bank of Malawi said in a statement.
The bank is scheduled to hold a news briefing to announce the official removal of the peg along with other foreign exchange restrictions.
The bank sent directives to commercial banks at the weekend, saying the peg would be scrapped from Monday and the market would determine rates.
“We're sitting as an individual bank this morning to decide by what margin to adjust the exchange rate,” said Anderson Kulugomba, Managing Director of Nedbank Malawi, a subsidiary of South Africa's fourth largest banking group, Nedbank.
Malawi has been hit by a foreign exchange shortage stemming from strained ties between former President Bingu wa Mutharika and international donors, which led Western powers to scrap aid that normally accounted for 40 percent of its budget.
New President Joyce Banda, who came to office a month ago after Mutharika died of a heart attack, had pledged to devalue the kwacha and restore the aid flow. - Reuters