November currency review

On 9 November, Malawi's central bank devalued the kwacha by a third, making it by far the weakest currency in the world during the month (see first table below). The move follows a similarly large devaluation in June 2022 and became necessary as foreign-exchange reserves were depleted and official and unofficial exchange rates diverged. The bank eased its control over the kwacha's value after the 2022 devaluation, but only a little, meaning it quickly became overvalued again as market sentiment was largely ignored. There is no sign of further relaxation now, so expect another big devaluation in a year or so. As far as expatriate cost of living is concerned, the weaker currency will be substantially offset by Malawi's high inflation; latest 26.9% and likely to rise.

Despite good progress with reforms by the current government, Zambia's currency (also called the kwacha) has failed to reflect the better governance and has fallen steadily over the last year, with another 12% loss against the euro in November. There are two main issues: firstly, interest rates on its foreign debts (which are huge because of the last government's massive overspending) have soared since Russia invaded Ukraine, making investors nervous and more risk averse; and, secondly, the slowing economy globally (but especially in China) has hit copper exports hard. Zambia is overly reliant on the copper trade. It is hoped that these factors, largely beyond its control, don't unravel all the government's good work.

Having fallen 6% against the euro in October as the war with Hamas erupted, the Israeli shekel in November recovered all of its lost ground (see next table). As market participants gradually realised that what was awful news for millions of people in Israel and Gaza would be less troublesome for the economy, they bought back into the shekel, raising its value to where it was before 7 October. The bounceback shows, once again, the wisdom of taking a deep breath and assessing situations thoroughly when currencies suddenly slump, rather than acting precipitously to protect expatriates' standards of living. 

Finally, here is this month's selected currency movements table: