Inflation to rise to 26.9 percent
Malawi’s 2013 average inflation rate is forecast to rise to 26.9 percent, about six percentage points higher than last year’s pointing to higher prices and lower real disposable incomes.
Nico Asset Managers, October 2013 report released last week, notes that the market is changing and may lead to a rise in inflation rate in the wake of aid freeze and the depreciation of the kwacha.
On November 7, the Common Approach to Budgetary Support (Cabs) announced the withholding of $150 million (about K60 billion), due to financial mismanagement that has rocked Capital Hill. Earlier, the International Monetary Fund (IMF) announced the suspension of aid over same concerns.
However, the local investment and portfolio advisory firm quotes the Economist Intelligence Unit (EIU) noting that it expects average inflation to rise to 26.9 percent in 2013 compared to 21.4 percent in 2012, due to factors including the depreciation of the kwacha.
“Higher inflation rate will lead to higher cost of living and higher costs of doing business. The higher inflation rates will lead to higher interest rates as people demand better returns. It will also affect lending rates which will reduce the amount borrowed and less disposable income. As a result ,there will be a decline in savings and investment,” reads the report in part.
However, according to the National Statistics Office (NSO) figures, inflation has been declining since peaking in February at 37.9 percent. In September inflation stood at 21.7 percent representing a 1.6 percentage point drop on the month before.
Last week, the Reserve Bank of Malawi (RBM) said it will tighten the monetary policy to address challenges due to delayed disbursements by the country’s donors.
The central bank further said in the wake of the aid freeze, it is going to tighten monetary policy and manage exchange rate adjustment in order to ensure continued improvements in the availability of foreign exchange in the market while at the same time controlling inflationary pressures.
RBM has thus revised inflation targets to 23.1 per cent by end-December 2013, and to 15 percent by end-June, 2014 because of the expected increase in food prices and the recent postponement of donor disbursements.
The initial target for end-December 2013 was 14 percent and seven percent for end-December 2014
While experts and businesses have also feared that the aid freeze may trigger government domestic borrowing, push interest rates and further worsen the depreciation of the kwacha.
