Today's Major Market Move: Malawian Kwacha Weakens 65% Year to Date

Many of the countries in central East Africa (Kenya, Tanzania, Uganda), were having issues with weakening currencies in the middle part of 2011. However since then, most of the countries have seen their currency situation improve. Malawi is an exception who continues to deal with serious inflation issues. The Kwacha has weakened 64% so far this year against the US Dollar, making it the second worst performing currency over that time frame.

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 Here's a refresher of what countries occupy the central east African region:

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The Malawi had been maintaining a peg to the US Dollar but last month, with pressure from the IMF, the Malawian authorities removed the peg which triggered a 50% overnight devaluation. The peg had been maintained at 165 Kwacha to the Dollar but the black market rate was hovering around 270. Here's a line chart of the US Dollar/Kwacha cross going back to the beginning of 2011:

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The currency move is part of an effort by a new administration to improve ties with the IMF and international donors. The previous president, Bingu wa Mutharika, had a contentious relationship with the international community due in part to an incident where government forces killed 20 civilian protestors. Mutharika died of a heart attack last month, opening the door for a new administration headed by President Joyce Banda who quickly started making moves to repair international relations. Here are some more details courtesy of Reuters:

The IMF had called for a 50 percent devaluation of the kwacha, which commercial banks were selling on Monday at 250 to the dollar - well above the former peg at 165 and close to the black market rate of about 275.

The Reserve Bank of Malawi said it did not expect the currency reform to stoke inflation, because most commodities were already being traded at the unofficial exchange rate.

"At 250 per dollar the exchange rate is well adjusted," the Reserve Bank of Malawi said in a statement.

"It should also, together with the liberalisation of the foreign exchange market, contribute to government's efforts to reach early agreement with the IMF, which should lead to unlocking donor flows in the next few months."

Former colonial master Britain and major aid donor the United States froze aid packages worth nearly $1 billion to a country with an annual GDP of around $5.6 billion.