The International Monetary Fund (IMF) yesterday expressed delight at the continued drop in inflation rate, saying it provides assurance that the Reserve Bank of Malawi (RBM) has a good grip on the economy’s direction.
Malawi’s inflation as measured by the Consumer Price Index (CPI) declined further by 0.9 percentage points to 8.4 percent in September 2017 due to continued drop in food prices, particularly maize, according to National Statistical Office (NSO).
In an interview yesterday, IMF resident representative Jack Ree said the continued decline in inflation rate is good news as it shows that the current decline is firmer and speedier than many thought.
“The speed of the decline in inflation during the last six months or so has been quite dazzling. Now that it had reached the single digit range last month, one could naturally have expected that it may take a break for a while. That did not happen [and] inflation is now moving right towards the interior single digits zone,” he said.
Ree said the September inflation rate drop shows that RBM has control over the direction of the inflation.
In the last Monetary Policy Committee (MPC) meeting, RBM held policy rate or bank rate—the rate at which commercial banks borrow from the central bank—at 18 percent.
Ree said RBM’s decision was a strong signal of its intention to avoid premature unwinding of its tightening stance.
Analysts say the continued drop in inflation rate is significant because it will give impetus to RBM to continue cutting the policy rate, current at 18 percent, a development which would induce borrowing by individuals and firms for productive purposes.
However, economists say there is need to watch the movement of non-food inflation, arguing that it has the potential to reverse the gains made in food inflation over the past 12 months.
Another risk could be the projected repeat of the 2015 weather pattern in which some parts experienced extreme drought and episodes of heavy flooding, according to the Southern Africa Regional Climate Outlook, which may result in poor crop output.
Economist Gilbert Kachamba, who lectures at Catholic University, on Sunday said while low inflation is a dream for every economy, the worry for most Malawians is the transformation of this downward trend to real life experiences.
“The non-food sector is still having a higher rate making it difficult for typical Malawians to appreciate this lower inflation rate. My hope is that this lower rate is sustainable so that in the long run Malawians will appreciate the lower inflation rate,” he said.
The drop in inflation rate means prices of goods and services will be rising at a reduced rate compared to same period last year when it was at 21.2 percent.