Reserve Bank of Malawi speaks on inflation outlook
The Reserve Bank of Malawi (RBM) has recommended a wait-and-see approach to inflation trends as the outlook remains mixed.
This is contained in the central bank’s market intelligence report issued on Friday.
In the report, RBM says the existence of the UN-backed agreement, which is allowing Ukraine to export grains to other regions of the world, and weak demand resulting from deteriorated purchasing power, are driving down international prices for a number of commodities.
However, some country-specific factors could negate the impact of the anticipated disinflationary pressures from global factors.
“Given the intense uncertainty surrounding the macroeconomic outlook, it would be prudent for policymakers to adopt a neutral stance and react whenever it is necessary,” the central bank says.
The statement comes after Malawi’s inflationary trajectory took a new twist in January 2023 as the headline inflation rose, albeit marginally, to 25.9 percent from 25.4 percent recorded in December 2022.
The inflationary pressure was seen easing at the close of 2022, as it went down from 25.8 percent, averaging 21 percent in the year.
The slight drop in headline inflation recorded in December 2022 was, however, ironic as the country was at the peak of the lean season but it signalled hope for an ease in the rate at which food and non-food prices would be increasing.
But figures from the National Statistical Office show that in January, food and non-food inflation rates stood at 30.5 and 20.4 percent, respectively.
Due to rising inflation which emanated from trade imbalances due to the war in Ukraine, last year, the central bank adjusted twice the policy rate to 18 percent from an initial 12 percent.
Economist from University of Malawi Lucius Cassim has indicated that for the local economy, it might be too early to think of having a neutral approach until it is certain that inflation rate will be easing.
He added that the country should scrutinise other means of arresting the inflation rate because it has been seen that using policy rate does not help as expected.
“Our textbook approach to arresting inflation rate is not helping locally; therefore we need to have other means of arresting inflation rather than what we are doing now,” he said.
In its Monetary Policy Committee report published recently, the RBM said it expects the average headline inflation to slow down to 18.2 percent this year from 21 percent recorded in 2021.
The RBM anticipates subdued imported inflationary pressures on account of declining fuel and non-fuel global commodities prices.
However, the central bank remained cautious, saying the outlook remains mixed as an elevated inflation risk is still imminent due to structural challenges, among other things.
The Economists Intelligence Unit projects a year-on-year inflation rate of 13 percent while the International Monetary Fund sees inflation averaging 16.5 percent this year.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.