The recent monetary policy stance is a necessary step in order to ensure price stabilisation in the economy in line with the county’s planned budgetary benchmarks, an industry insider has said.
The analyst said this in the context of the recent move by the Reserve Bank of Malawi (RBM) to raise the policy rate —a key driver of interest rates on loans—by two percentage points.
In a written response to a questionnaire on Tuesday, former Malawi Confederation of Chambers of Commerce and Industry president Martin Kansichi Banda observed that economic performance of the country has brought about mixed reactions to the country’s cash flow.
He said: “The current environment has created heavy borrowing by government from banks, to meet budgeted targets. Obviously, this needs to be managed by the RBM to avoid monetary imbalances on agreed economic reserve ratios which start finding ways to put its balance sheet in the right perspective.
“We need to start managing our expenditure on unnecessary luxury items, in order to conserve our foreign reserves. There is nothing worse than being extravagant in a lean period like this and finding yourself unable to meet important obligations in critical sectors like health, education and agriculture.”
According to Banda, the timely policy measures by the central bank become necessary in order to ensure that agreed stabilization ratios take effect in line with our planned budgetary benchmarks.
“This is always the case all over the world, and, in these days is not unique for Malawi because just recently, the United States and other economic powers of the world have done likewise,” he said.
Earlier Economists Association of Malawi (Ecama) executive director Frank Chikuta said the move was expected as it was obvious that RBM would raise the policy rate as both economic fundamentals and outlook have.
“For some time, developments in the economy have pointed to a possible rise in the policy rate but we know the central bank has overtime maintained the rate for good reasons. This hike was inevitable looking at the economic shocks which are coming one after another, forcing the central bank to tighten the monetary policy,” he said.
On his part, Catholic University of Malawi economics lecturer Hopkins Kawaye agreed with Chikuta, saying the move, which was expected is meant to ensure price stability given the rising inflation.
“This is certainly meant to contain the pressure on prices which have been rising for some time. The RBM is trying to reduce the money in circulation and contain the rising costs of goods. It could have actually been surprising to see them not acting when all parameters were pointing to a possible hike in the policy rate,” he said. Banda also announced an upward revision of the 2022 inflation rate projection from 10.4 percent to 12.3 percent, a decision he said has among others, taken into account the inflation risks, trend and outlook which point to persistence of inflation pressures.