The Monetary Policy Committee has reduced the bank rate, the country’s policy rate to 22.5 percent from 25 percent—a rate maintained since December 2012.
The committee has also increased the December 2014 inflation projection blaming it on the inconsistent implementation of the Automatic Pricing Mechanism (APM) for fuel.
Minutes of an MPC meeting held on Tuesday indicate that based on analysis of economic developments including domestic growth, inflation, fiscal developments, foreign exchange reserves, and financial stability concerns, the committee resolved to adjust the policy rate downwards effective Wednesday July 9 2014.
The MPC which was chaired by Reserve Bank of Malawi Governor Charles Chuka also resolved to reduce the Lombard rate—the rate at which stressed commercial banks borrow from the central bank—which stood at 27 percent to 24.5 percent.
However, the MPC maintained the Liquidity Reserve Requirement (LRR) and the daily observable LRR at 15.5 percent and 12 percent, respectively.
During the previous MPC meeting, the committee resolved to observe factors including the country’s inflation to revise the policy rate which has been blamed for the country’s high lending rates.
Since the last MPC meeting, Malawi’s inflation fell from 23.9 percent in April to 22.6 percent in May according to the National Statistical Office (NSO).
The Economist Intelligence Unit (EIU) expects average inflation to fall to 19.6 percent in 2014 compared to 28.6 percent in 2013.
The International Monetary Fund (IMF) under the country’s Extended Credit Facility targets 9.7 percent inflation rate by December 2014.