In a desperate attempt to control money supply and rein in inflation, the Reserve Bank of Malawi (RBM) has issued securities—tradable instruments—worth K17.9 billion at over 40 percent, a move condemned by an 
economist as counterproductive.
According RBM daily money market reports, the central bank has issued securities through Open Market Operations (OMO)—the buying and selling of government securities in an open market to expand or contract money supply—at a rate up to 40 percent, which is 15 percentage points above the bank rate at 25 percent.
Currently, inflation, the rate at which the general level of prices for goods and services is rising, is at 22.9 percent as of November 2013, according to the National Statistical Office (NSO), casting doubt on government meeting its annual projection.
Chancellor College economics professor Ben Kaluwa in an interview on Wednesday said the central bank is desperate to control money supply and control inflation, but was quick to point out that the policy is wrong.
“The RBM is obsessed with controlling money supply to control inflation. This is a wrong approach in Malawi. The central bank is using wrong instruments for a good cause. We all know that inflation is mainly influenced by food prices and so why not target an increase in its production which will lead to lower prices?
He said the monetary policy that the RBM is using is applicable in developed economies where inflation rates are below five percent.
Kaluwa warned that the move may lead to a further rise in interest rates because all yields for securities influence interest rates.
He argued that the situation will encourage commercial banks to buy the securities and not lend to businesses, hence denying resources to businesses.
End-March 2013, interest rates jumped to over 40 percent in response to yields for Treasury Bills (T-bills) that rose to around 43 percent.
This year, commercial banks have started increasing their lending rates to around 40 percent in the wake of a Lombard facility pegged at 27 percent, a situation that will have dire implications for businesses and consumers who want to borrow or service loans.
On January 2, according to RBM money market reports, the central bank issued securities valued at K10.2 billion through OMO at an average 27.6 percent.
