Firm sees continued loose monetary policy

Post was last updated: May 23, 2019

By Taonga Sabola:

Investment management and advisory firm, Nico Asset Managers, says it expects the Reserve Bank of Malawi (RBM) to maintain a loose monetary policy stance to maintain price stability and encourage economic growth.

A loose monetary policy occurs when the money supply is expanded and is easily accessible to citizens to encourage economic growth.

In its April 2019 economic report released last week, Nico Asset Managers says the continued loose monetary policy stance would depend on inflation remaining subdued.

It, however, says the central bank is expected to tighten the monetary policy between 2021 and 2023.

“Low lending rates reduce the cost of borrowing which stimulate private sector activity, resulting in economic growth.

“However, it may also lead to low propensity to save as savings rate also decline,” the report reads.

The firm further says it expects the kwacha to remain relatively stable against the dollar in the short term due to continued availability of foreign exchange reserves and reduced demand for foreign currency.

It, however, says in the medium to long term, the kwacha is expected to depreciate due to the significant current account deficits and weak foreign direct investment inflows.

The Economist Intelligence Unit has predicted the pace of annual currency depreciation to increase to over nine percent this year, while fiscal consolidation after the elections is expected downward due to pressure on the currency in 2020.

“In 2021-22 a weaker US dollar and higher exports aided by a strengthening in the prices of some of Malawi’s agricultural exports should provide further modest support to the kwacha,” Nico says.

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