IMF tips RBM on price stability
The International Monetary Fund (IMF) has asked authorities to ensure that monetary framework remains anchored on containing reserve money growth to stabilise inflation pressures.
In its country report for Malawi released on Monday, the global lender said while the Reserve Bank of Malawi (RBM) has maintained an accommodative monetary policy stance since 2020, there has been growth in money supply in the economy which has been inflationary.
The IMF notes that RBM monetary policy stance has not been fully sterilising the monetary impact of the decline in foreign exchange intervention, which has resulted in reserve money and broad money year-on-year growth rising 33 percent and 25 percent, respectively, in September 2021.
The global lender has since called on RBM to consider a greater flexibility in the exchange rate while maintaining price stability as its primary objective.
Reads the report in part: “In this regard, RBM could use various instruments to drain excess liquidity from the system, including deposit auctions, sales of its holdings of government securities, and issuance of its own securities.”
Meanwhile, Malawi’s year-on-year headline inflation rate has hit double digit as November inflation rose by 1.3 percentage points to hit 11.1 percent, triggered by a rise in food and non-food inflation, according to National Statistical Office (NSO) figures.
The figures show that during the same period last year, inflation rate was recorded at 7.3 percent, which means prices of goods and services during the period under review increased at a fast rate.
RBM spokesperson Ralph Tseka was yet to respond to an e-mailed questionnaire to comment on the IMF’s position.
But Malawi University of Business and Applied Sciences economics professor Betchani Tchereni in an interview on Tuesday observed that containing inflation in Malawi requires dealing with the supply side because the middle class is stifled.
He noted that inflationary pressures in Malawi are not pushed by growth in money supply, but low manufacturing base which needs to be used. Our supply side is really too unattended.
Tchereni said: “We do not have much to export and gain competitiveness as is theoretically purported. To this end, therefore, it must be noted that in Malawi, the economics which works is one of making sure that we do not bring in expensive imports that stiffle the economy and welfare.
“In Malawi at this stage, we do not need a more flexible exchange rate, we must have the goods produced first.”
Malawi has lately experienced the rise in the price of fuel which has in turn triggered a rise in the cost of living.
RBM had put this year’s average inflation rate at 9.1 percent and also revised upwards the 2021 and 2022 inflation rate projection due to rising fuel and maize prices and global supply chain disruptions.
