The Reserve Bank of Malawi (RBM) has indicated that inflation will begin to fall starting in May 2024 and reach the medium-term target of 5 percent in 2026 on the back of the tight monetary policy stance it has adopted in recent years.
This came out during a Monetary Policy Technical Forum held in Blantyre on Tuesday.
During a presentation, the Central bank highlighted that inflationary pressures are expected to continue rising in the first half of the year hovering above 35 percent before prices begin to stabilise.
However, authorities from the central bank were not forthcoming to share the actual inflation projection for 2024.
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In an interview, RBM’s Director Economic Policy and Research Kisu Simwaka said the Central Bank adopted a plus or minus 2 inflation target which means the 5 percent is in the range of 3 to 7 percent.
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“The 5 percent is a desirable target. First, we belong to region blocks such as Sadc and Comesa. We agreed to have a desirable rate for the regional economy among others is that we want the Gross Domestic Product GDP to be growing at 6 percent to reduce poverty, we also want our foreign exchange reserves to be above 3 months of cover, we also want debt as a percentage of GDP to be sustainable that is below 60 percent.
“For all these to be achieved inflation must be consistent so in calculating all these that is where the 5 percent target comes. We have been in single digit inflation before, and we will achieve the target in the medium term.
“It has been difficult since 2020 understandably because of the disasters that we have experienced in between. In 2012 we devalued the Kwacha by about 50 percent and inflation moved from single digit to 37.9 percent in February 2013 then started coming down again to single digit between 2017 and 2018 what happened during that period? We kept policy rate high up to 27 percent. That helped inflation to come down to single digit, it also helped the Kwacha to stabilize without controlling it, by mid-2016. That helped reserves to start picking up and the economy to grow,” Simwaka said.
One of the participants at the event, Economist Marvin Banda said the RBM failed to acknowledge the damaging effects of Broad Money or M2 on inflation which was at some point 38 percent.
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He wondered how they could claim to be taming inflation when M2 is that high which translate in policy rate hikes hurting the real economy by creating credit shortages felt by citizens aiming to do business.
“The target of inflation of 5 percent is blindly ambitious because as a nation we have never hit this figure. The closest we have come is 7.1 percent during the Covid pandemic which saw an expected slowdown in price as a result of the lockdown initiatives. Targeting a 5 percent inflation rate when the world is expecting more climate shocks as well as geopolitical tensions seems to be theory based and impractical, yet we hope the RBM does reach the target,” Banda said.
A presentation made during the event by RBM highlighted that headline inflation for the last quarter of 2023 increased to 31.5 percent from 28.2 percent in the third quarter and 26 percent in the last quarter of 2022.
Food inflation rose to 39.9 percent from 38.5 percent in the third quarter of 2023 and 33.1 percent in the last quarter of 2022 while Non-Food inflation accelerated to 20.9 percent from 16.4 percent between July and September 2023 and 18.3 percent between October and December 2022.
It further indicates that inflation pressures have intensified, and that the trajectory will remain elevated significantly above the 5 percent medium term target, Risks ahead are still strong possibility of upward adjustment in electricity tariffs, high Inflation expectations, and El Nino and that to moderate inflationary pressures, the MPC raised the Policy rate to 26 percent.
