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Reserve Bank of Malawi targets 5% inflation by 2021

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By Taonga Sabola:

The Reserve Bank of Malawi (RBM) on Wednesday unveiled a three-year strategic plan which seeks to guide the operations of the bank from 2019 to 2021.

RBM Governor, Dalitso Kabambe said the new plan would, among other things, help the economy to achieve an inflation target of five percent by the first quarter of 2021.

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Kabambe said, to achieve this, RBM has set out its path for monetary policy, and at any point, it will make necessary adjustments.

He said it is also expected that, by that time, the Policy Rate will have followed reductions in inflation and settled at around 11 percent, thereby pushing down rates by commercial banks.

“In the new plan, the bank is expected to grow export revenues through the activities of the Export Development Fund (EDF) from less than $100 million per year currently to $600 million per annum by 2021.

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“Corporation and Malawi Embassies abroad, Diaspora Remittances are also expected to increase from $186 million registered in 2018 to $500 million per annum by 2021,” Kabambe said.

Kabambe, who is also Monetary Policy Committee chairperson, said the central bank is expected to completely eradicate challenges of transfer pricing and illegal externalisation of foreign exchange in collaboration with the Malawi Revenue Authority, the Malawi Police Service, the Immigration Department, the Financial Intelligence Authority, Office of the Director for Public Prosecutions and the Judiciary.

The RBM chief said the new strategic plan would also help Malawi improve its official foreign exchange reserves position to six months of imports from the current average of about three months.

Kabambe said economic growth is also expected to pick to seven percent and above while the exchange rate will continue to remain stable.

“In the financial sector, the main objective of the bank for the next three years will be to continue maintaining a safe, sound, stable and resilient financial sector by ensuring that the country has the necessary pieces of regulation and legislation throughout the period.

“The bank will also endeavour to contribute to capital market development. The number of listed companies on the Malawi Stock Exchange is expected to grow from the current 13 to 20. In addition, the Bank will also collaborate with relevant stakeholders to create the necessary environment for a steady rise in the number of bond listings and individual investors on the stock and bond markets,” Kabambe said.

He added that in the new strategy, RBM will also facilitate increased private sector credit against total domestic credit from an average of 9.6 percent to date to 16 percent by 2021 and also increase contribution of the microfinance and saccos sectors to total credit from six percent to 12 percent by 2021

“Furthermore, there are plans to facilitate scaling up of intermediation of pension funds towards infrastructure development and long term projects from the current 13.20 percent to 25 percent by 2021 and increase insurance penetration from the current 2.01 percent to around three percent by 2021,” Kabambe said.

The new strategic plan supersedes the 2018 strategic plan which Kabambe described as a success.

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