Reserve Bank of Malawi (RBM) has projected inflation rates of 10.7 percent and 8.5 percent in June and December 2017 respectively. The central bank is banking hopes on better harvest and stability of both the exchange rate and international oil prices.
In its fifth monetary policy statement titled Maintaining the Declining Path of Inflation, the bank said it will continue supporting the disinflation process by keeping the policy rate—the rate at which commercial banks borrow from the central bank as the lender of last resort—above the headline inflation currently at 12.3 percent as of May 2017.
The monetary policy statement signed by RBM Governor Dalitso Kabambe said the central bank will also continue improving its communication with market participants to convey its commitment to price stability and enhance the transparency and credibility of its monetary policy to better anchor inflation expectations.
“Monetary policy will continue to be geared towards achieving price stability and a single digit inflation by the end of 2017, supporting a build-up of international reserves and providing room for sufficient credit to the private sector,” he said.
While pointing out that the outlook for inflation remains broadly positive following the good agriculture season and the subsequent expected bumper yield, Kabambe said the outlook is subject to some negative risks.
He said: “Weaker global demand could lead to lower prices for Malawi’s export commodities and an eventual pressure on the kwacha. Therefore, developments in the export market and their implications for the domestic economy will be carefully monitored.”
“The 2016/17 tobacco season was marred by low prices which could adversely affect the 2017/18 season’s supply of foreign exchange. The comfort is that demand for foreign exchange remained subdued even during the lean season and is expected to remain so during the rest of 2017 which implies that the current levels of foreign exchange can adequately accommodate such pressures.”
In an interview, economic statistician Alick Nyasulu said there is a high likelihood of attaining the projected targets as food inflation is going down mainly as a result of a good maize harvest and lower prices outside Agricultural Development and Marketing Corporation (Admarc).
However, he cautioned that the push towards the targets may hinge on what authorities can control.
“Currency movements are very critical because slight movements can raise fuel prices that tend to have a ripple-multiplier affect over the entire consumption with a potential to reverse any price fall gain being currently enjoyed from maize prices,” he said, adding that reducing government borrowing through treasury bills should also be key.
On his part University of Malawi (Unima) economics professor Ben Kaluwa said unless government breaks the seasonally cycle which is what largely drives the inflation rates in the country, achieving the eight percent inflation rate by December is possible.
“We have to get out of rain-fed agriculture and put concentrated efforts on irrigation farming,” he said. n