Reserve Bank of Malawi revises 2020 inflation forecast

Reserve Bank of Malawi revises 2020 inflation forecast

Post was last updated: August 5, 2020

Ben Kalua

The Reserve Bank of Malawi (RBM) has revised upwards the 2020 average inflation projection to 9.8 percent, a Monetary Policy Committee (MPC) statement has shown.

This represents a one percentage point change from the earlier projection of 8.8 percent.

In its recent assessment on possible impact of the Covid-19 pandemic on the economy, the government project that inflation may crawl back to a double digit band, reaching 14 percent, if the disease is not contained by December this year.

The MPC statement on the other side indicates that hdeadline inflation declined to an average of 8.9 percent in the second quarter of 2020 from an average 10.6 percent recorded in the first quarter.

This is on the back of weakening food and domestic fuel prices.

“There are impending significant inflationary pressures emanating from a gradual pick-up in food prices largely maize, increased short term pressure on the exchange rate, increase in global oil prices and increased public sector financing requirements.

“Annual inflation for 2020 is thus projected at 9.8 percent, 0.4 percentage points higher than the 9.4 percent obtained in 2019,” reads the statement in part.

In an earlier interview economics professor at Chancellor College, Ben Kalua, said each year, Malawi sees inflation surging in the third and fourth quarters.

He added that the development will likely trigger an increase in interest rate.

“Malawi inflation starts rising in May, but this year it stabilised a bit, now it has started going up; that is the inflation cycle. Now, interest rates does not remain stable when inflation is rising,” Kalua said.

The Central Bank maintained the Policy Rate at 13.5 percent and the Lombard Rate at 0.2 percentage points above the Policy Rate.

RBM also maintained the Liquidity Reserve Requirement ratio on both local currency and foreign currency deposits at 3.75 percent.

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