By Wezzie Gausi:
Reserve Bank of Malawi (RBM) has revealed that it will maintain a tight monetary policy until the country attains sufficient disinflation.
This follows an International Monetary Fund (IMF) Global Financial Stability report that has warned central banks to avoid premature monetary easing.
It further urges appropriate push back against overly optimistic market expectations for policy rate cuts that could add to the easing of financial conditions and complicate the last mile of disinflation.
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According to the report, where progress on disinflation is enough to suggest that inflation is moving sustainably toward the target, central banks should gradually move to a more neutral stance of policy.
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In an interview, RBM spokesperson Mark Lungu said Malawi is still in a high inflation environment.
He said there was no way the country could think of monetary policy easing.
“For us, easing monetary policy is not an option for now. We will maintain a tight monetary policy until our economy starts to tick in the right direction,” Lungu said.
Economist Marvin Banda said although higher prices are here for the medium term, combating inflation should not be limited to the policy rate.
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“The liquidity reserve requirement and quantitative adjustments are some of the tools RBM has at its disposal but use so sparring at best.
“However, when one considers the data on bank loans, it is seen that household short term debt increased post 44 percent devaluation and subsequent rate hikes to indicate possible effects of monetary policy. RBM may have seen this and with populist pressure would be induced to embark on premature rate cuts,” Banda said.
Recently RBM indicated that inflation will begin to fall and reach the medium-term target of 5 percent in 2026 on the back of the tight monetary policy stance it has adopted in recent years.
The central bank adopted a plus or minus 2 inflation target which means the 5 percent is in the range of 3 to 7 percent.
However, Minister of Finance Simplex Chithyola Banda, while presenting the 2024-25 national budget, indicated that they expect inflation to marginally decline to 27.1 percent in 2024.
This represents a 1.7 percentage point decline when compared to the 28.8 percent average inflation recorded in 2023.
This also means that prices of commodities may remain high for the better part of the year.
Meanwhile, a publication by the World Bank, Africa’s Pulse, shows that Malawi has the third highest overall inflation and food-inflation rates in 2024. Titled ‘Tackling Inequalities to Revitalise Growth and Alleviate Poverty in Africa’, the publication ranks Malawi third with overall inflation recorded at 35 percent in January and 33.5 percent in February after Zimbabwe (34.8 percent in January and 47.6 percent in February) and Sierra Leone (47.42 percent in January and 42.52 percent in February).
Malawi is also third on the list of countries with the highest food inflation after Egypt and Sierra Leone.
IMF has since tipped countries with stubbornly high levels of inflation such as Malawi, Ethiopia, Zimbabwe and Sierra Leone to remain restrictive on the monetary policy stance.
It further emphasises the need for economic policies to foster inclusive growth as the inability of the region to sustain growth over longer horizons has resulted in sub-Saharan Africa falling behind the rest of the global economy.
“The median rate of inflation in the region is expected to drop from 7.1 percent in 2023 to 5.1 percent in 2024 and 5 percent in 2025–26. The lower inflation in sub-Saharan Africa could be attributed to the normalisation of global supply chains, the steady decline in commodity prices and the effects of monetary tightening and fiscal consolidation across countries in the region.
“Disinflation efforts are expected to continue although at differing paces across countries. There is risk of a slight acceleration of inflation among countries holding elections this year,” the publication reads.
