The money market has continued to be flooded with liquidity, a development a market analyst has predicted is likely to push inflation further up.
MalawiÃ¢â‚¬â„¢s year-on-year inflation has been on the rise for the past six months since July 2011, with the National Statistical Office (NSO) putting the year-on-year headline inflation for December 2011 at 9.8 percent, a 0.9 percentage points increase from 8.9 percent in November.
Market analyst at Alliance Capital Limited Cosmas Chigwe explained that the increasing liquidity is mainly arising from the inability of the commercial banks to provide importers with requisite foreign exchange.
Ã¢â‚¬Å“Companies are unable to access foreign exchange; hence, keeping their money in the commercial banks which is being loaned out to the public,Ã¢â‚¬Â said Chigwe.
This means that there is more money in the system chasing few goods, triggering the rise in the prices of commodities.
Figures from the Reserve Bank of Malawi (RBM) quoted by the advisory firm indicate that as of last week liquidity was at K12.9 billion, a 21 percent increase from K10.3 billion the week before.
Ã¢â‚¬Å“The forex shortage appears to make it difficult for the monetary authorities to effect tight fiscal policies,Ã¢â‚¬Â he said, forecasting the liquidity levels will continue to rise in the foreseeable future due to the acute shortage of foreign exchange.
Chigwe said the recent issuing of a K30 billion bond, two bonds of K10 billion each and two bonds of K5 billion each, is a step by the monetary authorities to rein in on the rising liquidity levels.
The two and three-year notes will offer coupons (returns) of eight percent and 8.5 percent respectively, while coupon rates on the four and five-year notes are 9.5 percent and 10 percent, respectively.