The Reserve Bank of Malawi says it expects inflation to decelerate to around 10.7 percent in June this year.
In its Monetary Policy Statement released on Monday, RBM has further projected inflation to hit 8.5 percent in December, 2017.
This follows a significant fall in inflation over the past couple of months, buoyed by improved food availability coupled by the tight monetary policy implemented by RBM as well as a stable exchange rate.
The sustained increase in the general level of prices for goods and services was recorded at 12.3 percent in down from 15. 2 percent in April 2017.
The statement, signed by RBM Governor, Dalitso Kabambe, indicates that the central bank expects headline inflation to continue declining in 2017 on account of better harvest and stability of both exchange rate and international oil prices.
RBM further says the rapidly declining inflation creates room for gradual easing of monetary policy.
“The precise path of monetary easing will remain data-dependent while being conditional on inflation being on track to reach its target of 12.3 percent or below by December 2017.
“The bank will continue supporting the disinflation process by keeping the policy rate above the headline inflation. In parallel, the bank will continue improving its communication with market participants and the general public to convey its commitment to price stability and enhance the transparency and credibility of its monetary policy to better anchor inflation expectation,” Kabambe said.
The central bank says the 2017 inflation outlook could still be affected by some negative risks. Among the risks, RBM says weaker global demand could lead to lower prices for Malawi’s export commodities which may exert pressure on the kwacha.
“Therefore, developments in the export market and their implications for the domestic economy will be carefully monitored. The 2016/17 tobacco season was marred by low prices which could adversely affect the 2017/18 season’s supply of foreign exchange.
“The comfort is that demand for foreign exchange remained subdued even during the lean season and is expected to remain so during the rest of 2017 which implies that the current levels of foreign exchange can adequately accommodate such pressure,” the statement reads.