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Russia, Ukraine tension bothers local authorities

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The Reserve Bank of Malawi (RBM) is worried that, as tension between Russia and Ukraine threatens stability of the global supply chains, economies might catch the cold, a thing which could further destabilise the recovery process in Malawi.

The central bank says in its recent Market Intelligence Report that on-going geopolitical tension between Russia and Ukraine is a cause for concern as the higher than anticipated oil prices induced by the phenomenon could delay the convergence of inflation to medium term targets in most countries.

The report adds that the developments could compel central banks to implement less accommodative monetary policies that could jeopardise economic recovery.

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“The RBM continues to monitor both domestic and global developments and take necessary action to mitigate any risks to the inflation outlook that is perceived to be permanent,” reads the report.

The attack of Russia on Ukraine has propelled some western countries including the US to impose sanctions on the country with the aim of easing the tension.

As economic risks emerge, the central bank of Russia has hiked the policy rate to 20 percent from 10 percent which economists believe is a move to control inflation and other economic risks.

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Economics Association of Malawi (Ecama) Executive Director Frank Chikuta shared RBM’s concerns, indicating that the direct impact would be a rise of gas and fuel prices.

Chikuta added that the situation also threatens local economic growth prospects, projected by the government at 4.1 percent in 2022 and 4.0 percent in 2023.

“An increase in fuel prices will automatically translate to the rise in the cost of production and general prices of goods and services. If the economic risks heighten, RBM will need to tighten its monetary policy stance so that it controls the risks of inflation and others on the local scene,” he said.

Reuters reports that since the attack two weeks ago, prices of fuel in Russia and other countries have started picking up by an average of more than 2 percent.

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