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Expectations soar as Monetary Policy Committee meets today

By Taonga Sabola:

THULA— Food inflation is expected to continue rising

As the Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) starts meeting in Blantyre today, the Indigenous Businesses Association of Malawi (Ibam) has expressed hope that monetary authorities would consider slashing the policy rate, currently at 16 percent.

The policy rate has been stable for 13 months since it was reduced in December 2017.

Ibam President, Mike Mlombwa, said Malawi’s policy rate has remained high compared to other countries in the region.

Mlombwa said that was the reason Ibam and other lobby groups pushed for an Interest Rate Capping Bill last year.

He said, listening to sentiments from the Central Bank and Capital Hill, chances are high that authorities would reduce the policy rate.

“Looking at macroeconomic indicators, such as inflation, it has started going down and chances are high that it would go further down once Malawians start harvesting maize.

“Again listening to the RBM Governor [Dalitso Kabambe] last week, he indicated that he anticipates the economy to face reduced headwinds this year than last year, we have no doubts that the authorities would reduce the policy rate,” Mlombwa said.

Catholic University Dean of Social Sciences, Gilbert Kachamba said chances are high that the policy rate would be slashed.

He said the economy has been experiencing stable economic conditions in the recent past.

Currently, base lending rates by banks hover around 23.5 percent. This means that borrowers pay around 30 percent interest on loans when risk is factored into the loans.

Economics Association of Malawi Executive Director, Maleka Thula, said looking at performance of the key macroeconomic economic indicators, Malawi has performed relatively well.

Thula said with inflation bouncing back to single digit at 9. 9 percent in December 2019 and expected to be further galvanised by the downward revision in domestic fuel pump price, declined global oil prices, stable exchange rate—on this front, prospects for inflation remain favourable.

“However, being in the lean season, food inflation is expected to continue rising and expenditure from both private and public sectors are expected to rise with impending elections.

“Given the foregoing, economic prospects remain benign thus chances of revising policy rate remain minimal. In absence of these risk factors, this would have been the opportune time to cut the policy rate in order to support growth,” Thula said.

Speaking on the sidelines of the launch of the Malawi Stock Exchange Automation, Microfinance Hub and National Switch Operationalisation, Kabambe said authorities would review the performance of the economy during the two-day MPC meeting.

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