The Central Bank of Madagascar shares its analyses of the evolution of the exchange rate after these months marked by the pandemic. The MID remains essential.

There is no need to suspend the Interbank Currency Market (MID) or the floating exchange rate regime because Madagascar does not have the currency reserves that could support a fixed exchange rate regime. This is one of the essential points announced by the Central Bank of Madagascar, in its analysis of the economic context in the face of the pandemic. “Without this support, an arbitrarily low rate of the Ariary, which does not reflect economic fundamentals, would inevitably lead to currency scarcity and rationing, which would bring us back to the parallel markets of the 1980s and its exchange rates much higher than the official exchange

Decrease

The institution also announces that maintaining the floating exchange rate regime through the MID requires several orientations and measures. There is the control of domestic inflation and the strengthening of the monitoring of export, repatriation and currency transfer operations. The exchange rate is justified by supply and demand on the MID. However, maintaining the floating regime depends in particular on promoting export diversification.

This year, vanilla export revenues fell by 44% compared to 2019. Account supplies to mining companies fell by 17%. Imports of petroleum products, on the other hand, fell by 22%, and imports of consumer goods are reported to be “stabilized at a high level” despite the crisis. From January 1, 2020 to September 1, 2020, the ariary depreciated by 11.4% against the euro and by 3.9% against the

The strong appreciation of the euro against the dollar would have amplified this depreciation. The rate of 1.0 euros was 1.0750 dollars in March 2020 and rose to 1.1960 dollars on September 1, 2020, representing a depreciation of the US dollar of 11.25% against the euro internationally, which had a strong impact on the parity between the euro and the ariary. “Given the predominance of payment transactions denominated in dollars (64.2%), in the short and medium term, the depreciation of the rate against the euro will not significantly impact the level of domestic prices” reassures the

All international transactions using the dollar were 64.2%, while 34% for the euro.