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Reserve Bank of Malawi maintains policy rate at 12.0 percent

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The Reserve Bank of Malawi (RBM) has maintained the policy rate—the rate at which banks borrow from the central bank as lender of last resort—at 12.0 percent in a bid to support economic recovery from the Covid pandemic knocks.

RBM has also announced to have maintained the Liquidity Reserve Requirement (LRR) ratio on domestic and foreign deposits at 3.75 percent and the Lombard rate at 20 basis points above the policy rate

This is contained in the RBM’s Monitory Policy Committee (MPC) report which was issued after a two-day meeting held between April 28 and 29, 2021.

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According to the report, in arriving at this decision, the MPC considered the need to support and sustain economic recovery, while managing upside risks to the inflation outlook.

The MPC report further says domestic real economic growth is projected to strengthen to 3.8 percent in 2021 from an estimated growth rate of 0.9 percent in 2020.

“The Covid pandemic continues to weigh heavily on economic activity in Malawi. Nevertheless, the ongoing vaccination campaign, coupled with the above average agricultural production during the 2020/21 season as well as the recovery of the global economy, provide optimism for economic turnaround,” reads the report.

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African Institute for Corporate Citizenship (AICC) Chief Executive Officer Felix Lombe said in an interview that the country should focus on stimulating the livelihoods of the people for the recovery of the economy.

“There should be policies to protect SMEs [Small and Medium Entrepreneurs] by cushioning them, protecting the poor masses through safety nets and cash transfers and also stimulating employment by way of public works,” he said.

In a separate interview, the Polytechnic-based economist Betchani Tchereni said the government should also focus on tax incentives on areas that can quickly grow the economy and focus on few but big projects.

He added that RBM should continue with fiscal austerity measures even when the economy starts gaining shape.

In November last year, RBM dropped the policy rate with 150 basis points from 13.5 percent to 12 percent, a development which saw reference dropping four times to 11.90 percent.

Speaking in an earlier interview, Economics Association of Malawi President Lauryn Nyasulu said the drop in policy rate was the right step towards economic recovery.

Malawi’s economy was not exempted from effects of the Covid pandemic as it registered a meager 0.9 percent in Gross Domestic Product from the post Covid era projection of 1.9 percent.

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