Reserve Bank of Malawi misses 5% inflation target

Onilie Nkuna

The Reserve Bank of Malawi (RBM) is poised to miss its medium-term inflation target of 5 percent or 7 percent upper limit owing to a rise in headline inflation in the past three months.

Headline inflation has been on an upward spiral since November 2020, rising to 8.3 percent in February 2021 from 7.7 percent in January.

At the beginning of the year, the RBM Monetary Policy Committee (MPC) projected annual growth of 7.8 percent and 7.5 percent during 2021 and 2022, respectively.


However, the projections were still higher than RBM’s medium-term inflation target rate of 5 percent.

Finance Minister Felix Mlusu projected the 2021 annual headline inflation at 7.4 percent, with a December 2021 inflation projected at around 7.0 percent.

Figures he provided when presenting the Mid-term Budget Statement to Parliament recently show that non-food inflation has been oscillating around 5.0 percent since the beginning of 2019.


Economics Association of Malawi President Lauryn Nyasulu said headline inflation continues to be dictated by food inflation and that increases registered are largely seasonal.

“Food inflation is expected to come down in the coming months as the harvesting period kicks in. Consequently, headline inflation is also expected to slow down,” Nyasulu said.

Chancellor College-based economist Exley Silumbu attributed the recent surge in headline inflation to the rise in non-food inflation.

He said this has been mainly due to pass-through effects of rising global petroleum fuel prices and domestic currency depreciation.

“This dumping effect on inflation will be augmented by the expected substantial drop in food prices given the impending food harvest this year.

“If the monthly food inflation component can drop by another 7 percent points this year, as it did last year from February to September, then annual headline inflation can be expected to drop below 7 percent this year,” Silumbu said.

RBM spokesperson Onelie Nkuna said the first quarter, which the target focused on, is not yet complete.

“Kindly note that, since they are quarterly targets, they would only be analysed after the quarter has elapsed. However, all these issues will be covered in the statement of the upcoming MPC meeting,” Nkuna said.

In 2019, RBM started implementing a three-year strategic plan in which it set an ambitious 5 percent inflation target to be achieved by the end of the first quarter of 2021.

In February last year, the central bank adopted what it calls a symmetric band of 2.0 percentage points around the point target of its inflation projection.

This means, when setting an inflation target, the central bank will aim at maintaining the rate within a range of plus or minus 2.

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