Reserve Bank of Malawi hints at tight monetory policy
The Reserve Bank of Malawi (RBM) has hinted at further tightening the monetory policy in a bid to cushion the country from biting inflation, a move an economic expert has described as not viable for Malawi.
The bank has indicated in its March 2022 Market Intelligence Report that the move would ease inflation pressure which stems from economic disruptions due to the war between Russia and Ukraine.
According to the report, global economies are grappling with rising inflation and the responses by central banks have varied that while most of the central banks in advanced economies have begun to tighten their monetary policy, a majority in emerging and developing economies are yet to implement the necessary inflation control measures.
This is due to considerations for several objectives including reviving economic growth and enhancing public debt sustainability.
It adds that the Malawi economy has not been spared from the economic turbulence caused by the war as evidence by the recent increase in inflation, with domestic inflation in the recent months moving further away from the medium-term target.
“Considering the current global developments and the uncertainty brought about by the war, monetary policy will need to be vigilant and counter the impending upward risks and pre-empt any further increases in inflation,” the report reads.
Commenting on the matter, however, an economist from the Malawi University of Business and Applied Sciences Betchani Tchereni believes that tightening monetory policy for a country like Malawi is not practical.
Tchereni is of the view that the case of inflation for Malawi is not that many consumers are chasing limited goods because a higher percentage of Malawians consume imported material; therefore, the inflation is imported.
“Ours is imported inflation because there are very few things we consume that are produced in the country. Therefore, we just need to make sure that the country has enough foreign currency; that way inflation can be controlled,” he said.
The Business Times understands that the Monetory Policy Committee of the central bank met last Friday to, among other things, review economic trends.
If the central bank resorts to adjust upwards the policy rate, which now stands at 12.0 percent, the cost of borrowing might also be elevated as commercial banks would likely reciprocate by raising their lending rates.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.