BY TAONGA SABOLA:
Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) Wednesday resolved to maintain the country’s indicative cost of borrowing, technically known as bank or policy rate, at 16 percent.
The decision did not come as a surprise considering the inflationary pressures the economy has been experiencing in recent months emanating from rising food and non-food prices.
Inflation has been on the upward spiral in recent months and was recorded at 9.3 percent in August, up from nine percent in July.
MPC’s decision means Malawians will continue to grapple with elevated costs of servicing bank loans currently averaging 23 percent.
Briefing reporters in Lilongwe, RBM Governor, Dalitso Kabambe, who chairs MPC, said the committee observed that inflation edged up to 9.1 percent during the second quarter of 2018 which was 0.5 percentage points above the first quarter of 2018 on account of rising utility and food prices.
“The committee noted that risks to inflation outlook still persist on account of further increases in administered prices, higher food and global oil prices and increased public sector financing requirements,” Kabambe said.
He said inflation in the remainder of 2018 is projected to remain above the medium term objective of five percent on account of the perceived risks.
Kabambe said the decision to maintain the policy rate at 16 percent would help to reduce the impact of upside risks.
“The committee decided that maintaining the current policy stance will help in containing pressures and directing inflation towards the medium term objective of five percent.
“The policy stance will be complemented by mop-up operations to maintain the liquidity conditions at required levels. The committee also resolved to keep the liquidity reserve ratio at 7.5 percent,” Kabambe said.
The Economist Intelligence Unit had predicted in its Second Quarter Country Report that inflation would average 12.4 percent in 2018 on the back of a 25 percent electricity tariff hike, higher oil prices and a tightening of local food supplies as a result of a sharp decline in maize output.
“Although the central bank shifted to a looser monetary stance in 2017, inflation is again on the rise and RBM may opt for a modest increase in its policy rate which currently stands at 16 percent in the second half of 2018.
“Inflation is expected to resume a downward trajectory in 2019-20, paving the way for a more accommodative monetary policy. This will go into reverse in 2021-22, as inflationary pressures once more start to build,” reads the report in part.
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