The Reserve Bank of Malawi (RBM) has maintained the inflation rate forecast of 19.3 percent by June this year, but has fallen short of committing to a target of 14.2 percent for the same period.
But two economists yesterday said the 14.2 percent target is attainable, but sustainability is a tall order.
In its third monetary policy statement released in January this year, RBM announced a 14.2 percent inflation target for June, to enable monetary authorities attain an average inflation rate of 21 percent in 2016.
But in a statement of the 2nd Monetary Policy Committee (MPC) for 2016 released yesterday, the central bank said inflation rate has been declining since January this year due to a drop in non-food inflation which has eased 5 to 17.8 percent in March 2016.
“Headline inflation is expected to decelerate to 19.3 percent by June 2016, reflecting a seasonal improvement in food supply, stability in the exchange rate and low international oil prices. Upside risks to the inflation outlook are however expected beyond June 2016,” reads the MPC statement in part.
RBM said the inflation outlook is premised on the current food situation as announced by government and much of it will depend on the response to the crisis.
Therefore, the MPC resolved to maintain a tight monetary policy stance and review the situation after the 2016/2017 budget presentation.
Inflation rate for March 2016 is at 22.1 percent, according to the National Statistical Office (NSO), a drop from the previous month’s 23.5 percent.
University of Malawi’s (Unima) Chancellor College economics professor Ben Kaluwa, in an interview yesterday, asked authorities to invest in production if the country is to attain a continued decline in inflation rate to sustainable levels.
He said: “The target that they have set may be attained because this is the harvest season, but still there need for the country to invest in consistent food production. “Every year, we have been under producing and if this does not change, we will continue to experience such trends [rising inflation].”
On his part, economic commentator Edward Chilima, who is also executive director of Economics Association of Malawi (Ecama), said it could be possible to attain the target, but observed that sustaining the figure is an issue.
“The current target is practical. Nevertheless, the issue remains what happens after the harvest and tobacco season as these are the main drivers of the slowdown in inflation in the present situation,” he said.
Chilima applauded government for reducing net borrowing, saying there is need to tighten expenditure by spending what is available.
A recent International Monetary Fund (IMF) report stated that reducing inflation-the general rise in the prices of goods and services-is the most important policy issue for Malawi in the near term.