RBM maintains policy rate at 24%

RBM maintains policy rate at 24%

Post was last updated: October 27, 2023

The Reserve Bank of Malawi (RBM) has today maintained the policy rate, a key driver of interest rates on loans, at 24 percent.

The decision by the central bank comes in the woke of the RBM’s stance to keep the policy rate tightened until a sustained declining trend in inflation is achieved.

This is against calls to adopt a looser monetary policy to strive for increases in private consumption and support real gross domestic product through credit expansion which supports private consumption and investments.

In its statement of the Fourth Monetary Policy Committee (MPC), the committees chairperson RBM Governor Wilson Banda said in arriving at this decision,
while mindful of the weak domestic growth, the MPC considered the recent moderation in inflationary pressures.

However, Banda said the committee noted upside risks to the inflation outlook that included exchange rate
movements, increases in crude oil prices and adverse weather conditions.

He said: “The Committee noted that inflationary pressures had somewhat abated during the third quarter of 2023, resulting in a marginal slowdown in average headline inflation to 28.2 percent from 28.4 percent in the previous quarter.

“Therefore, the committee will continue to monitor closely indications of
inflationary pressures and stands ready to act accordingly in line with its
monetary policy mandate.”

During the quarter under review, non-food inflation decelerated to an average of 16.4 percent in the third quarter of 2023, from 17.6 percent in the preceding quarter, an outcome which was attributed to a relatively tight monetary policy environment and lower imported inflation.

In the last MPC meeting, the central bank had projected annual inflation to average higher at 29.5 percent in 2023 than 24.5 percent forecasted during the previous MPC meeting and compared to an average of 20.9 percent in 2022.

As a consequence of the inflation outlook, MPC decided to increase the policy rate by 200 basis points to 24 percent from 2022 percent.
The policy rate was static at 12 percent since 2021 and the central bank indicated that it was meant to support economic recovery from the Covid-19 pandemic.

However, in view of rising inflation, the central bank had, since the last-quarter of 2022, sustained an adjustment in the policy rate to tame the rising inflation.

Earlier, economist Exley Silumbu said price stability is critical, observing that high prices are dealing a heavy blow to consumers and enterprises.

He, however, noted that inflationary pressures are not pushed by growth in money supply, low export and manufacturing base, saying addressing these would help tame inflation and stabilise prices in the short to medium-term.

The Economist Intelligence Unit (EIU) had earlier urged RBM to consider no further adjustments in monetary policy despite intensifying inflationary pressures.
Caption: Banda: The committee stands ready to act

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