Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) Wednesday resolved to maintain the policy rate – the country’s indicative cost of borrowing – at 13.5 percent.
The MPC also maintained Lombard Rate at 0.4 percent above the policy rate, and the Liquidity Reserve Requirement at 5 percent and 3.7 percent on local and foreign currency deposits, respectively.
Briefing journalists in Lilongwe Wednesday, RBM Governor, Dalitso Kabambe, who chairs MPC, said the decision has been arrived at to consolidate possible build-up of inflation risks and ensure inflation rate remains in single digit.
He said although rising maize prices may marginally push up headline inflation in the near term, this elevation is deemed temporary and does not pose a risk to the medium-term inflation objective of 5 percent by 2021.
“The economy has displayed notable resilience despite the adverse effects of Cyclone Idai and the weak performance of tobacco exports in 2019. Real Gross Domestic Product continues to recover and is projected to grow by 5 percent in 2019,” Kabambe.
Inflation has remained within a single-digit band for a greater part of the year, seen at 9.3 percent in the third quarter of 2019.
The central bank projects inflation to average 9.0 percent in 2019.
Inflation increased in the third quarter of 2019 to 9.3 percent from 9.0 percent in the second quarter of 2019.
Kabambe said food inflation has largely been driven by maize prices which rose to K227 per kilogram (kg) in October 2019 from K130 per kg in October 2018.
He said non food inflation has remained remarkably low as it declined further to an average of 5.4 percent in the third quarter of 2019 from 5.5 percent in the previous quarter, largely owing to stability in the exchange rate.
Kabambe further said the economic outlook remains positive.
Economic commentator, Edward Chilima said while this is good news, one hopes that this is not just on paper as it will have serious implications when reality strikes.
“This is good for business but let us hope this is going to be sustainable. There is danger of showing an economy that is seen performing on paper yet not reflective reality.
“When reality creeps in, those businesses that grew on an assumption of a sound economy as is projected now get the hit,” Chilima said.