Reserve Bank of Malawi maintains policy rate at 13.5 percent

Post was last updated: January 31, 2020
Ben Kalua

Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) resolved to maintain the policy rate—the country’s indicative cost of borrowing—at 13.5 percent.

The MPC also maintained Lombard Rate at 0.4 percent above the policy rate, and the Liquidity Reserve Requirement at 5 percent and 3.75 percent on local and foreign currency deposits, respectively.

During a press conference at the end of the committee meeting yesterday in Blantyre, RBM Governor, Dalitso Kabambe, said the committee had observed that although rising maize prices are likely to continue pushing up headline inflation in the first quarter of 2020, the elevation is deemed temporary and does not pose significant risks to the medium-term inflation outlook.

He further said the Central Bank has forecast inflation to average 8.8 percent in 2020 from the 9.4 percent average in 2019 and a stable exchange rate throughout the year.

“Looking at the projections we have we expect (economic) growth to be between 5 and 6 percent up from 5 percent in 2019, we also expect private sector credit to grow from the current 21 percent because of the low interest regime which will continue in 2020.

“We are excited that the private sector growth is skewing towards the energy, mining and quarry sectors, showing us some balance from the dominant agriculture sector over the years which is also raising hopes of diversifying our economy,” Kabambe said.

He further revealed that the RBM has adopted a symmetric band of 2 percentage points around inflation target point to keep up with global trends but maintains a 5 percent target by the first quarter of 2021.

The development has excited economic experts who believe the stance by the committee will go a long way to stabilise the economy in 2020.

Executive Director of the Economics Association of Malawi (Ecama), Kettie Nyasulu, said maintaining the policy rate at 13.5 percent in the face of recent rise in inflation rate indicates that the monetary policy is in a good place.

“This step will help to keep the economy strong amidst recent uncertainties both locally and internationally. Such relatively low rates are aimed at stimulating economic growth, as lower financing costs can encourage borrowing and investing.

“Besides, I would have to concur that the recent observations regarding the rising prices of maize is temporary and soon the inflation rate may start to lower on account of improved supply of maize during the forthcoming harvest season,” Nyasulu said.

Economic professor at chancellor college, Ben Kalua, said the development means the borrowing public will continue to access cheaper loans.

“That is good news for the borrowers and also for the banks because constant changes of the policy rate are costly for business. Businesses do not like to be in a situation where they continually change prices and on the 8.8 inflation average, it is achievable if we have a fairly good harvest,” Kalua said.

The RBM has maintained the policy rate at 13.5 percent since May 2019.

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