A Monetary Policy Committee (MPC) meeting of the Reserve Bank of Malawi in Lilongwe on Wednesday and Thursday, last week, resolved to maintain the policy rate at 27 percent as inflation continues to run away.
According to minutes of the meeting chaired by RBM Governor, Charles Chuka, the indaba also agreed to maintain the liquidity reserve requirement at 7.5 percent.
The meeting, among others, observed that inflation had started to climb in the past few months as the food situation worsened.
The gathering noted that addressing the food question could be critical in pulling down inflation, recorded at 22.6 percent in June.
With about 6.5 million
Malawians expected to face acute hunger this year, analysts have indicated that Malawi’s inflation is expected to accelerate in the coming months.
The decision to maintain the high cost of borrowing comes at a time when businesses continue to grapple with elevated interest rates which threaten to choke the future of many industries.
This, coupled with weak purchasing power among Malawians, has resulted in many businesses limping, especially in the first half of 2016.
According to MPC, last week’s meeting observed that global recovery was fragile and the outlook remained weak.
“According to the July 2016 World Economic Outlook update, growth for the 2016 has been revised downwards to 3.1 percent from 3.2 percent forecasted in April 2016. The revision was based on projected weak demand and narrowing output gap which were expected to weigh negatively on economic activities in advanced economies.
“In addition, the outcome of the Brexit vote is expected to increase political and institutional uncertainty in major economies. Oil prices are projected to remain steady at US$48 per barrel in 2016 and gradually rise to around US$50 and US$60 per barrel in 2017,” says MPC.
On the domestic front, the meeting observed that growth is expected to remain subdued following two consecutive years of below par agriculture production due to unfavourable climatic conditions.
“In line with the foregoing economic conditions and the near term economic outlook, the MPC resolved to maintain the policy rate at 27 percent. The decision is aimed at achieving stability in the medium term,” read the minutes in part.
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