By Taonga Sabola:
Investment management and advisory firm, Alliance Capital, has predicted a further drop in the policy rate on the back of an anticipated continued drop in inflation.
The Monetary Policy Committee of the Reserve Bank of Malawi is expected to meet in Blantyre on May 2 and 3 to review the performance of the economy and, where necessary, make a decision on the policy rate.
Malawi’s inflation was seen at 7.9 percent in February, with the policy rate recorded at 14.5 percent.
In its First Quarter Economic Report released Thursday, Alliance Capital says it expects an improved outlook for food supply which would pull down food prices.
“Therefore, inflation is very much likely to hit below seven percent before the second half. With inflation expected to fall further, the stance of monetary policy is expected to soften further as the authorities try to support the economy.Advertisement
“The RBM will focus on interest rate movements to anchor expectations and promote price stability. Since we expect inflation to fall further, we therefore expect the benchmark interest rate, the policy rate, to fall as well. We also expect money market rates to continue falling,” Alliance Capital says.
The firm further says it expects the kwacha to start gaining with the commencement of the tobacco selling season.
Tobacco Control Commission Chief Executive Officer, Kaisi Sadala, on Monday said this year’s tobacco-selling season would start on April 25 with the opening of the Lilongwe Auction Floors.
Sadala said the Chinkhoma Auction Floors was scheduled to be opened on April 29 while the Limbe and Mzuzu markets will be opened on May 2 and 6, respectively.
“This prospect is heightened by the inflow of forex coming in through non-governmental organisations as they support disaster relief efforts,” Alliance Capital says.
In its strategic plan unveiled in January, RBM said it eyes an inflation rate of five percent by the first quarter of 2021, a development which would help the authorities to bring down the policy rate to 11 percent.
At its first MPC meeting of 2019, RBM reduced the policy rate by 150 basis points from 16 percent to 14.5 percent; adjusted downwards the Lombard rate from 200 basis points to 40 basis points above the policy rate and cut the Liquidity Reserve Requirement (LRR) on foreign currency deposits by 375 basis points from 7.5 percent to 3.75 percent while the LRR on local currency deposits was reduced by 250 basis points from 7.5 percent to 5 percent.