The Reserve Bank of Malawi (RBM) has revised upwards its annual average inflation target to 29.5 percent, the second time since Minister of Finance Sosten Gwengwe presented the 2023-24 national budget to Parliament in March.
The estimate is contained in the central bank’s Monetary Policy Committee (MPC) statement published on Friday.
The MPC also raised the policy rate to 24 percent and the liquidity reserve requirement ratio on domestic currency deposits to 7.75 percent.
The inflation estimate represents a five percentage point climb from 24.5 percent projected in April, and is 8.6 percentage points higher than the 20.9 percent average inflation recorded in 2022.
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Further, it is 11.3 percentage points higher than the initial average inflation projection of 18.2 percent in the 2023-24 national budget.
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“The MPC noted that inflationary pressures persisted during second quarter of 2023, as evidenced by a surge in headline inflation to an average of 28.4 percent, from 26.5 percent in the first quarter, and compared to 19.4 percent for the second quarter last year.
“The outturn was driven by acceleration in food inflation, which rose to an average of 38 percent in the second quarter from 31.7 percent between January and March and compared to 25.4 percent for second quarter of 2022,” the MPC report reads.
It says the rise in food inflation reflected the impact of high costs of farm inputs, which has been sustained by the ongoing Russia- Ukraine war.
The impact of unfavourable weather conditions experienced earlier this year has also exacerbated the situation, according to the statement.
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However, the MPC noted that non-food inflation moderated to 17.6 percent in the second quarter from 20.4 percent in the first quarter, but was higher than 14.0 percent recorded between April and June 2022.
A recent report by the Economics Intelligence Unit predicted inflation to average 30.6 percent in 2023 in Malawi.
The report indicates that between 2024 and 27 there will be a decline in commodity prices and improved availability of foreign currency to import food and fuel to lead to a fall in inflation.
In an interview, economist Edward Chilima said the projection is a true reflection of the situation on the ground.
He added that given that the prices of maize will continue to rise, the country should expect enhanced inflationary pressure going forward.
“It is obvious that the rising inflation rate will hurt most Malawians as this translates to upward pressure on prices of most commodities. Recent interventions to allow importation of maize from abroad is meant to cushion the ever-increasing prices of maize and indirectly rescue the increasing inflation pressure. Though this is one way of averting the challenge, it is unlikely that the effect on local maize prices will be significant enough to arrest the local rise in maize prices,” he said.
In a separate interview, former RBM Governor Elias Ngalande said the situation was getting tougher for consumers.
“The increase in the policy rate means it will be expensive for commercial banks to borrow funds from RBM. As a result, they will raise their lending rates to at least 26 percent, thereby making loans expensive for the borrowing public.
“On the other hand, the 7.75 percent reserve requirement rate means that 7.75 percent of commercial bank deposits will not be available for lending and commercial banks will earn nothing from that amount. Commercial banks may compensate by adding another margin to their lending rates or even introduce some service fees,” Ngalande said.
