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Reserve Bank of Malawi eyes stable inflation, Kwacha

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Cosmas Chingwe

The Reserve Bank of Malawi (RBM) says it expects inflation to remain within the single digit band during first half of 2021 and beyond, with its monetary policy stance pointing towards economic stability.

The central bank also expects the local currency, the Kwacha, to gain momentum against other major trading currencies, factors it says would help in ensuring price stability.

The ambitions are contained in RBM’s Monitory Policy Report covering the period between January and June 2021.

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The report states that, amid a challenging environment, the monetary policy in the first half of 2021 will focus on maintaining inflation in single digit, anchoring inflation expectations, and entrenching the economy’s recovery from the Covid pandemic among other things.

“To achieve these objectives, the RBM will continue to pursue its monetary policy in line with pre-emptive more forward-looking monetary policy frameworks, with the short-term nominal interest rate, particularly the Interbank Rate (IBR), as an operational target,” reads the report.

The single digit inflation ambition is expected to be achieved without facing hurdles as the country expects a bumper maize harvest this year.

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This year, the country is earmarked to harvest 4.4 million metric tonnes of Maize, a situation that instills hope for stability in inflation.

Chancellor College economics lecturer Laston Manja said in an interview that there is need to support the private sector through improved liquidity if the economy is to pick up exponentially.

In a separate interview, independent economic commentator Cosmas Chigwe said the country lacks a fiscal space and capacity to adopt short term stimulus measures.

“The support to the manufacturing sector can be done by putting in place measures which support this sector’s access to credit or reduce interest payments. Moratoriums on interest payments and perhaps reduction of the policy rate can be the easiest measures,” he said.

In its April World Economic Outlook, the International Monitory Fund says it expects the local economy to grow by about 2.2 percent in 2021.

The projection is slightly lower than the 3.5 Gross Domestic Product estimate by the Ministry of Finance, banking on the expected bumper harvest this season.

The prospect is lower than the 2.5 percent growth rate the fund earlier projected last.

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