‘Monetary policy successful in 2019’

Post was last updated: December 30, 2019

The Reserve Bank of Malawi (RBM) has described the implementation of monetary policy in 2019 as successful.

RBM Director of Communication and Protocol, Mbane Ngwira, said in an emailed response to a questionnaire that, among other things, monetary policy kept inflation in single digit throughout the year except November, adding that inflation is expected to average 9.2 percent for 2019.

Ngwira said non-food inflation recorded a remarkably historically low level of 4.3 percent in October 2019.

“We continued with a track record of stable exchange rate which we established in August 2016 and maintained throughout 2019 despite a blip of June and July.

“We eased monetary policy stance to 13.5 percent down from 16 percent at the beginning of the year and successfully introduced the Reference Rate as the base lending rate for Commercial Banks. At 12.5 percent, not only is the base lending rate the lowest in decades, it has also assisted in pulling down interest rate spread from 31 percent in 2016 down to 7.5 percent which is much better than regional peers and this has led to private sector credit expanding by an average of 15 percent for the year to date up from an average of 4 percent during the comparable period in 2018,” Ngwira said.

He observed that private sector credit has remained positive in 2019 while it was mostly negative in 2018.

Ngwira added that interest rates for microfinance institutions have also come down to their lowest levels in decades to no more than six percent per month down from 30 percent for some products, saying this has led to growth in micro and small scale loans from K32 billion at the beginning of the year to K49 billion by November 2019.

“Non-performing loans at 4.3 percent have decreased to their minimum regulatory requirement levels of less than five percent.

“The banking sector has become more liquid and profitable,” Ngwira said.

The RBM Spokesperson said the central bank, together with Treasury, managed to successfully see through the second and third reviews of the Extended Credit Facility programme with the International Monetary Fund.

Ngwira said it is expected that the improvements would support further growth of the macro-economy in the medium to long term.

“Our major challenge in 2019 has been food price developments particularly maize. Maize prices increased strongly during the year causing persistent high food inflation. This is a challenge for monetary policy because it creates negative inflation expectations despite the fact that the source of inflation is from the supply side.

“As repeatedly explained in the past year, the modern monetary policy that the RBM adopted, requires that the expectations should be well anchored. But food prices will collapse and converge towards non-food inflation, assuming there will be no any serious supply shock in 2020, hence, this challenge is considered temporary,” Ngwira said.

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