Malawi

Malawi initially fixed its exchange rate to the USD and then the SDR, but soon began to adjust it more frequently. A long period of recurring loose monetary policy largely driven by fiscal deficits, and with repeated policy slippages, was eventually succeeded by a greater emphasis on price stability, a floating exchange rate and movements towards indirect monetary instruments.

YearsTargets and attainmentClassification
1974-81exchange rate, formerly fixed to GBP, set daily from late 1973 on formula based primarily on changes to GBP and USD; initially central bank relies mainly on moral suasion in limited and concentrated banking system, interest rates rarely varied; treasury bills and long-term government securities issued, latter purchased by central and other banks and nonbanks; June 1975 peg to SDR; from 1976 credit directives issued to banks and liquid assets ratio varied more often; 1979 international transport disruptionaugmented exchange rate fix AERF
1982-2017devaluations 1982, 1983, and 1984, partly in response to changes in rates between currencies of major trading partners (USA, South Africa, UK) and partly to unwind real appreciation due to higher domestic inflation; 1984 peg switched to wider (but undisclosed) currency basket; import controls tightened; from 1985 repeated discrete and gradual depreciations with aim of stabilising real effective exchange rate; no secondary market for government paper but central bank is obliged to buy or sell on demand; 1987 maximum lending rates for banks decontrolled, all interest rates formally deregulated 1988 but in practice closely follow central bank signals; import liberalisation from 1988; 1989 new legal status for central bank, new reserve requirement; 1990-1 large rise in and subsequent changes in reserve requirement, introduction of bank rate linked to rate on auction of central bank bills, rediscount facilities, end of direct credit ceilings and interest rate controls, but indirect instruments have limited traction in concentrated banking and underdeveloped financial system; from 1990 authorities pursuing nominal exchange rate stability in between adjustments to offset inflation differentials; 1994 forex auctions introduced with informal interbank forex market, formalised 1996, exchange rate managed with periodic depreciations; 1995 improvements in settlement system for bills and entry of new banks; as of 1996 monetary policy conducted mainly via OMOs in treasury bill auctions, but central bank funding of varying fiscal deficits continues and lasting fiscal consolidation proves difficult, while monetary growth and inflation fluctuate widely; 1998 large depreciation allowed, followed by announcement of future float which started in mid-2000 (with occasional episodes of intervention); monetary policy committee set up 2000, with focus on monetary aggregates and price stability; 2006-9 de facto peg to USD with some controls, bringing real appreciation, forex rationing and rising parallel market premium, 2010 return to managed float but growing use of controls lowers  donor enthusiasm; 2012 large devaluation and renewed liberalisation under new government, genuine float, parallel market premium shrinks; 2013 ‘cashgate’ scandal over theft of public funds reduces confidence; monetary policy operated via OMOs with improved communication, central bank finance of government more limited from 2015, and wide interest rate corridor (standing facilities) from 2016; 2018 plans to move to full interest rate based monetary framework and eventually inflation targeting; statistical database had long been weak but now improvingloosely structured discretion LSD

Selected IMF references: RED 1973 pp70, 94, 103; RED 1975 pp45-9, 56, 81; SR 1975 pp10-11, 14-15; RED 1977 pp41, 50, 69; RED 1979 pp48-9; RED 1980 pp40-1; RED 1981 pp40-2; RED 1983 p67; RED 1984 p69; RED 1985 pp43, 71; RED 1986 pp44-5, 75; RED 1988 pp54-6, 85; RED 1989 p32; SR 1989 pp30, 31; RED 1991 pp31-3, 50, 54; SR 1991 pp9, 14-16; SR 1992 pp8, 10, 12, 15-16; BP 1994 pp3, 7-9, 12-17, 20-1; SR 1995 pp17-18; RED 1996 pp24-5; SR 1996 pp9, 13-14; RED 1997 pp3, 11-12; SR 1997 pp12; SR 1998 pp11, 14, 18; SISA 2000 p7; SISA 2007 pp17-25; SR 2007 p16, 19-20; SR 2010 pp7-8, 12-13-14; SR 2012 pp5-8, 11, 13; SR 2015 pp4, 19-20; Seventh and Eighth Reviews under ECF… pp15-16, 44, 49-50; SR 2018 pp6, 12-13.

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