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Economic shocks to persist, experts fear

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Betchani Tchereni

Pressure is expected to persist on Malawi and other developing economies as most developed countries in the Euro zone and the United States continue tightening their monetary policies to contain effects of the Russo—Ukrainian War.

Global economic think-tank, the Economist Intelligence Unit (EIU) forecasts that the Federal Reserve of the United States will raise rates by 250 basis points by the end of 2022.

It expects the European Central Bank to also discontinue its quantitative easing programme at the end of June 2022 and raise rates three times this year and five times next year.

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This, coupled with a slash in support to developing economies like Malawi, according to experts, will have a bearing.

In one of its recent Market Intelligence reports, the Reserve Bank of Malawi already said the ongoing 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 RBM further said the developments could compel central banks to implement less accommodative monetary policies that could jeopardize economic recovery plans.

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“If big economies such as the United States tighten their monetary policy stance risks of currency depreciations in lower economies and fuel inflation pressures could intensify.

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

Already, due to the exogenous shocks, the country has seen its headline inflation remain elevated, seen at 23.5 percent in June.

Cost of living continues to bite hard as price of commodities rise, thereby eroding the buying power.

Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said in an interview the external shocks will continue chocking most sectors of the local economy.

He said demand for imports in the developed economies will continue dropping which will also affect local exports.

“The tightening of monetary policies by developed nations means that money supply in their countries will drop and that is something that as a local economy we need to be thinking of as well as we move on,” he said.

Two weeks ago, the RBM slashed its Malawi economic growth projection for 2022 to 1.7 percent from of an earlier 4.1 percent estimate at the back of weather shocks and impact of the Russo-Ukrainian War.

The central bank also adjusted upwards the country’s annual average inflation rate target to 23.2 percent from an earlier projection of 12.3 percent.

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