Economists have commended the Reserve Bank of Malawi (RBM) for maintaining the policy rate at 13.5 percent, saying there is need to balance between expanding the economy and inflationary risks.
In a statement on Friday after the third Monetary Policy Committee (MPC) meeting this year, RBM Governor Wilson Banda said the move was made in view of the short to medium-term inflation outlook while also providing space for supporting the economic recovery in view of the Covid-19 pandemic.
In an interview on Sunday, economist Edward Chilima said it is prudent to contain inflationary pressures and manage the exchange rate first before embarking on an expansionary monetary policy strategy.
He said: “In my view, holding the parameters constant at the current moment is prudent, like the bank has done. Then watch closely for a possible intervention in the near future.”
On his part, Betchani Tchereni, associate professor of economics at The Polytechnic—a constituent college of the University of Malawi, said many aspects in the economy have been affected, including revenue inflows, foreign exchange and inflation rate; hence, the need for prudent measures to manage the economy.
“Looking at the macro economy, the country is about to enter a lean period and we cannot play around with so much money when there is no production,” he said.
Chancellor College economics lecturer Exley Silumbu praised the cautious stance taken by RBM, saying it is crucial at a time inflation rate, currently at 8.5 percent as of June 2020, is under pressure.
He said: “We are coming from a situation of very a tight financial system with interest rates so high.
“We have come a long way and to reduce interest rates further may leave us in a bad state particularly when risks related to the Covid-19 pandemic are prevalent.”
Economic statistician Alick Nyasulu said inflation has been under control and the kwacha generally stable; hence, no motivation to make any changes on policy rate for now.
In arriving at the decision, the governor said the MPC noted that although inflation developments were favourable in the first half of the year, there are emerging upward risks to the medium-term inflation path.
“Meanwhile, economic activities have slowed down leading to a lower projection of GDP [gross domestic product] for 2020, reflecting the effects of Covid-19 pandemic on various sectors of the economy,” said Banda.