Economist Francis Chanthunya has challenged the Reserve Bank of Malawi (RBM) to reduce the policy rate to increase the rate of consumers’ access to capital through official channels.
According to Chanthunya, if managed correctly, the option would help contain inflationary pressure.
This comes as the RBM adopted a tight monetary policy stance leading to an increase in policy rate twice within six months to 12 percent in March and 24 percent in July.
Chanthunya said increasing the policy rate makes borrowing expensive.
He said the raise in the rate would not meet the intended purpose of containing inflationary pressure as the government remains the main borrower on the market, a situation which pushes public spending up.
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“These measures are clearly doing the opposite of the intended effect as there are chronic forex shortages and chronic inflation rise,” Chanthunya said.
Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer Chancellor Kaferapanjira said the policy rate increase means that the cost of borrowing constrains business growth.
“The adjusted rates also apply to what was already borrowed and borrowers meet huge costs to service their debt. In the end they adjust prices of goods and services,” Kaferapanjira said.
RBM spokesperson Mark Lungu said monetary policy stance is taken after looking at a number of factors amongst which is the risks to inflation.
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“We are coming from a situation whereby inflation was low in single digit in 2022 but has risen to 28 percent on average. So it was in the view of the monetary authorities to adjust the policy rate to manage inflation.
“Sometimes inflation rises because of public financing needs where the government requires spending, for example Cyclone Freddy; so those compromise the impact of the stance,” Lungu said.
