The Malawi kwacha is once again under the spotlight after showing signs of weakness against major foreign currencies such as the euro, the British pound and the South African rand, even though it has remained relatively stable against the United States dollar in the first half of 2025.
Fresh figures released by the Reserve Bank of Malawi (RBM) show that the local currency slipped by 8.6 percent against the euro, 6.2 percent against the pound and 3.4 percent against the rand. Against the US dollar, the currency only weakened by a marginal 0.08 percent, with the dollar cash rate in bureaux standing at K1,937.41 as at June 30, 2025.
The RBM also noted that the spread between the kwacha-dollar telegraphic transfer rate and the bureau cash rate widened slightly to 10.7 percent in the second quarter, up from 10.6 percent in the first quarter. This suggests that while the official rate has been kept largely stable, activity in the cash market and parallel markets tells a different story.
According to the International Monetary Fund (IMF), Malawi’s official exchange rate of K1,751 per dollar remains overvalued, creating distortions across the wider economy. In its country report, the IMF observed that even though the kwacha is officially operating under a floating regime backed by inflation targeting, the RBM in practice maintains a “stabilised” exchange rate system. This has led to increased pressure in the parallel forex market, where premiums compared to the official rate peaked at more than 150 percent earlier in the year.
Economic consultant Booker Matemvu explained that the changes in the kwacha’s performance mirror both global and local dynamics. He said global financial markets are moving away from the dollar, which itself is under strain, while Malawi’s domestic forex shortages continue to worsen.
“The result is that we see what looks like stability against the dollar, but when you look at the true picture in the parallel market, the kwacha is still falling. It is only a façade of stability,” Matemvu said.
Nico Asset Managers Limited, in its Mid-Year Economic Review, also painted a worrying picture. The firm highlighted that most of Malawi’s hard currency inflows in the first half of the year were quickly used up to pay for essential imports like fuel, fertiliser and medicines, leaving very little room to boost forex reserves. Official data shows that Malawi’s foreign reserves are hovering slightly above two months of import cover, which is below the internationally recommended three months threshold.
“This exposes the country to external shocks, including global commodity price changes, and reinforces the urgent need to diversify Malawi’s exports while strengthening fiscal resilience,” Nico Asset Managers said.
Economist Bond Mtembezeka also expressed concern that speculative activity in the forex market is being fuelled by shortages of hard currency. He explained that as long as liquidity remains tight, speculation and pressure on the kwacha will continue.
“The only lasting solution is to guarantee a steady supply of forex in both official and parallel markets. If that is not addressed, then speculation will always thrive,” Mtembezeka told reporters.
Financial Market Dealers Association of Malawi (FMDAM) president, Leslie Fatch, also warned that simply adjusting the value of the kwacha without tackling the core demand and supply imbalance will not solve the problem. He argued that measures such as devaluation can only be effective if accompanied by stronger forex inflows and improved reserves.
For now, the kwacha remains in a fragile position. While the official exchange rate shows minimal movement against the dollar, the widening gap between official and cash rates, persistent scarcity of forex, low reserves and external shocks continue to weigh heavily on the outlook.
With inflation already putting pressure on households and businesses, many Malawians will be watching closely how authorities move to stabilise the currency and improve forex availability. The debate continues on whether Malawi should pursue a more flexible exchange rate system or maintain stability through direct interventions in the market.
