Investment management and advisory firm, Alliance Capital, has said it expects the country’s monetary authorities to maintain the policy rate at 14.5 percent in the near term.
In its February 2019 Economic Report released on Friday, Alliance Capital says inflationary pressures persist from rising oil prices.
Goldman Sachs indicated Monday demand for oil was rising faster than expected, putting Brent crude, the international benchmark for oil prices, on course to exceed $70 a barrel.
Oil prices were stable at the end of last week, propped up by production cuts by the Organisation of the Petroleum Exporting Countries (Opec) and as the United States (US) sanctions against Venezuela and Iran probably created a marginal deficit in global supply in the first quarter of this year.
Alliance Capital says it expects inflation to fall further with a major pull coming from food inflation as the lean season begins to ebb.
“Upside risks to inflation include fuel prices that have been rising on the global market,” reads the report in part.
Alliance Capital says, given that risks to the inflation outlook seem to be waning, it expects the Reserve Bank of Malawi (RBM) to maintain the policy rate at 14.5 percent in the near term and revise it downwards when inflationary pressures continue to dwindle.
“Liquidity levels are expected to continue being relatively high; as such, we expect interbank rates to remain low in the meantime,” reads the report.
Alliance Capital says the kwacha was relatively stable in the foreign exchange market against the dollar.
“Despite volatility of the pound and rand, we expect the kwacha to remain range bound against these two currencies and register very marginal depreciations against the dollar unless dynamics change considerably,” the firm says.
RBM Governor, Dalitso Kabambe, said during the launch of the bank’s strategic plan that the institution targets a policy rate of 11 percent by the first quarter of 2021.
“In the medium term, the plan is to achieve an inflation target of 5 percent by the first quarter of 2021. To achieve this, the bank has set out its path for monetary policy and, at any point, the bank will make adjustments necessary to ensure that this objective is achieved.
“It is also expected that by that, time, the policy rate will also have followed reductions in inflation and settled at around 11 percent, while effective rates by commercial banks will have followed suit,” Kabambe said.