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Reserve Bank of Malawi counts policy gains, still cautious

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By William Kumwembe:

The Reserve Bank of Malawi (RBM) has attributed last month’s slight ease in headline inflation to monetary policy interventions deployed recently which it says is a base for optimism going forward.

However, in its November 2022 Market Intelligence Report issued last week, the central bank says the outlook remains mixed as an elevated inflation risk is still imminent.

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In November 2022, the headline inflation eased by 0.9 percentage points to 25.8 percent from 26.7 percent in October.

In the report, RBM says the hawkish monetary response by central banks in the recent past is showing some signs of optimism, as evidenced by a reversal of persistently rising inflation.

“Nonetheless, it is too early to recalibrate monetary policy to an accommodative stance, given that in most countries the current levels of inflation are substantially in excess of target.

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“Moreover, the mixed performance in global prices is a signal that the moderation in inflation pressure observed recently could be short-lived,” reads the report.

For a greater part of the year, headline inflation remained on an upward spiral in the country before it decelerated slightly in November.

Among other interventions, RBM adjusted its monetary policy rate—the rate at which commercial banks borrow from the central bank as lender of last resort—twice to 18 percent in October in a desperate attempt to contain the inflationary pressure.

Economist Gilbert Kachamba projected that inflationery pressure will persist in the country in the short term before it eases in the medium to long terms.

The International Monetary Fund projects Malawi’s headline inflation to average 20.8 percent this year and 22.7 percent in 2023.

Comparatively, the Treasury projects annual average inflation to rise to around 21.5 percent from 9.3 percent registered in 2021.

In 2023, according to government estimates, headline inflation is projected to stabilise at an average of 21.8 percent before it starts to decline thereafter.

In its 16th Malawi Economic Monitor issued last month, the World Bank said it expects inflation to remain high.

It said Malawian businesses and consumers would likely have to expect higher Malawi kwacha prices for imported products, especially fuel, fertiliser and cooking oil.

“In addition to rising inflation, there is a possibility of energy prices rising, which will increase electricity prices and further strain the costs of production.

“Pressures on the macro economy could create further challenges for the achievement of the government’s fiscal consolidation aims,” the bank said.

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