The Monetary Policy Committee (MPC) of the Reserve Bank of Malawi on Friday maintained the policy rate at 24 percent and the Lombard rate at 20 basis points above the policy rate.
This means that interest rates that commercial banks offer will likely remain constant until another committee meeting is held in January.
In a statement signed by RBM Governor Wilson Banda, he says the committee also retained the Liquidity Reserve Requirement (LRR) ratio at 7.75 percent on domestic currency deposits and 3.75 percent on foreign currency deposits, respectively.
According to Banda, the committee considered the recent moderation in inflationary pressures.
He said the committee was also mindful of weak domestic growth.
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However, according to Banda, the committee noted upside risks to the inflation outlook that included exchange rate movements, increases in crude oil prices and adverse weather conditions.
He said the committee will continue to monitor closely indications of inflationary pressures and stands ready to act accordingly in line with its monetary policy mandate.
The RBM Governor said the MPC noted that inflationary pressures had somewhat abated during the third quarter of 2023, resulting in a marginal slowdown in average headline inflation to 28.2 percent from 28.4 percent in the previous quarter.
The outcome, according to Banda, was explained by developments in non-food inflation which decelerated to an average of 16.4 percent in the third quarter of 2023, from 17.6 percent in the preceding quarter, an outcome which was attributed to a relatively tight monetary policy environment and lower imported inflation.
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“In contrast, the MPC noted that food inflation edged up to 38.5 percent in the third quarter of 2023, compared to an average of 38 percent in the previous quarter. The moderation in food prices was partly attributed to maize sales in some selected Admarc depots.
“However, upside risks to the inflation outlook include exchange rate movements, increases in crude oil prices and adverse weather conditions,” Banda said.
Speaking during the 2023 Financial Market Dealers Association (Fimda) Annual Conference, National Planning Commission (NPC) Director General Thomas Munthali said cutting interest rates now could help tame inflation in the medium to long terms.
Munthali said the challenge with Malawi is that the country has followed Western economics where when inflation is high, they raise interest rates to tame the sharp rise in prices of goods.
“The price of goods and services will go up if there are fewer or if the demand is too high. Now in our case, it is because we have too few goods and services in the market, as simple as that.
“So, for you to produce more goods and services, it means the cost of production has to be low. Now the cost of production comes by interest. If for instance inflation is going up and you reduce the interest rates the ability of the producers to produce more becomes high,” Munthali said.
