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Reserve Bank of Malawi maintains policy rate at 27%

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The Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) on Thursday resolved to maintain the rate of interest which it charges on the loans and advances to commercial banks at 27 percent as inflation and other fundamentals remained high.

The development comes at a time when lobby groups have been pressing for the lowering of the policy rate which would trigger commercial banks to cut their lending rates as one way of jumpstarting the local economy.

According to minutes of the first MPC meeting held in Lilongwe, the Committee also resolved to keep the Liquidity Reserve Requirement (LRR) at 7.5 percent.

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According to the minutes, the MPC said it expects Malawi’s economic growth to rebound to 5.6 percent in 2016 from 3.0 percent in 2015.

It was, however, quick to point out that the growth is likely to be revised downwards considering the dry spells reported in some parts of the country due to El Nino.

“The Committee observed that inflationary pressures remained high in 2015 but is on a declining trend. Headline inflation averaged 21.9 percent in 2015 compared to an average of 23.9 percent in 2014 and 27.3 percent in 2013. Headline inflation remained virtually unchanged at 24.9 percent in December 2015, from 24.6 percent in November 2015.

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“The Committee welcomed the slowdown in inflation in January 2016 to 23.5 percent. Looking ahead, however, inflationary developments remain seasonally uncertain in the next two months in view of food situation and deprecation of the kwacha in the last few months,” read the minutes of the report signed by its chairperson and RBM Governor Charles Chuka.

The committee further said money supply growth continued to moderate to 19.1 percent, in 2015 from 24.6 percent in 2014, and was considerably lower than the projected growth in nominal GDP.

Thus, according to the MPC, inflationary pressures were under control.

“Central bank’s foreign exchange reserves in December 2015 increased to US$667 million (3.19 months of imports) from US$617 million (2.95 months of import cover) recorded at end- November 2015. The end- December 2015 position was US$75 million higher than the amount of reserves observed at the end of December 2014, despite market interventions amounting to US$202 million during the year.

“Government domestic borrowing during the first six months of 2015/16 fiscal year amounted to K4.3 billion, compared to K36.2 billion recorded during a similar period of last fiscal year. The Committee looked forward to this being sustained over the medium term to anchor inflation expectations,” MPC said in the statement.

On the strength of the local trading unit, the kwacha, MPC says it expects the local currency to stabilise due to the opening of the new agricultural marketing season.

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