Food uncertainty and the implementation of the proposed K742.8 billion budget may threaten an increase in inflation—generally push up prices—according to monetary authorities.
According to a Monetary Policy Committee (MPC) meeting held on Tuesday, which was chaired by Reserve Bank of Malawi (RBM) governor Charles Chuka, noted that despite the positive developments to date, some risks still remain to the inflation outlook.
Based on the economic and monetary outcomes and outlook for the year, the MPC decided to maintain the policy rate at 22.5 percent, the Lombard rate—the rate at which liquidity stressed banks borrow from the central bank—at 24.5 percent and the Liquidity Reserve Requirement (LRR) and the daily observable LRR at 15.5 percent and 12 percent, respectively.
Inflation, measured the Consumer Price Index (CPI) has been falling since early this year to 22.3 percent in July due to both food and non food factors.
But the committee noted that regardless of the fall there are still risks to inflation outlook due to uncertainty in the food situation and fiscal budget implementation.
This year a total of 640 009 people will not have adequate food according to a report by the Malawi Vulnerability Assessment Committee (Mvac) for 2014 food security assessment.
The Mvac assessment results show that while production for the 2013/14 agriculture season is estimated at about four million metric tonnes against a current national maize consumption of three million metric tonnes, more than half a million people will not have adequate food down from about 1.9 million last year.
Apparently, the MPC noted that food inflation had started picking up earlier than expected on account of uncertainties about the food situation in the country.
Last week, the Minister of Finance, Planning and Economic Development Goodall Gondwe presented a budget pegged at K742.8 billion which has a fiscal deficit of about K107 billion against a background of donor withdrawal.
Analysts have so far cautioned on the implementation of the budget pointing out that it is difficult to implement cautioning the government not to print money to finance the wide fiscal gap.
The MPC has however, noted that fiscal consolidation will be crucial to ensuring that inflationary pressures are contained.