Reserve Bank of Malawi (RBM) says it is eyeing a decline in policy rate to 11 percent in the short-term on account of continued decline in inflation and sustained economic gains.
RBM Governor Dalisto Kabambe said this on Tuesday in Blantyre on the sidelines of the official opening of a symposium on investments in infrastructure through pension funds.
The governor said with forecast in maize production, the country is likely to get the lowest inflation rate ever since 1990 this year, with growth projected at five percent, up from 4.2 percent in 2018.
This growth is higher than the 3.5 percent global growth and 3.7 percent sub-Sahara African growth.
He said: “As inflation rate continues to go down, our objective is to ensure that inflation rate goes down to five percent, our policy rate would be at 11 percent. Looking at these macro-economic indicators, we all agree that our economy has indeed recovered.
“Recovery of economy is one side of the story, what sets in from there is what the private sector needs to grow the economy by expanding their economic activities so that the stability in the economy would be meaningful to Malawians,” he said.
The Monetary Policy Committee (MPC), which is expected to meet tomorrow, last reduced the policy rate in January by 1.5 percentage points from 16 percent to 14.5 percent.
This was 13 months since MPC last trimmed the policy rate, which was revised downwards in November 2017.
While this must have been good news to borrowers who have been struggling to settle their loans with commercial banks, private sector has been decrying the cost of finance, which it says has remained high despite interest rates coming down.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president Prince Kapondamgaga said a fortnight ago that while monetary policy is key to economic gains, interest and inflation rates decline on their own are not enough to make a triple effect to businesses, a situation needing supportive policies if the gains are to be fully utilised.
“The cost of finance is being structurally high despite monetary authorities putting in place policies that interest rates should go down. We are of the view that the financial sector is not responsive enough to the monetary authority policy dictates.
“When you deal with just monetary policy, it is not good enough because there are other equally important factors that need to be taken on board,” he said.
Kapondamgaga said if monetary policy is to translate, there is need for authorities to put in place good agricultural policies such as lifting the maize export ban.
Last week, Minister of Agriculture, Irrigation and Water Development Joseph Mwanamvekha said lifting maize export ban is an option government is looking at in the wake of a projected 355 000 metric tonnes (MT) maize surplus.
The export ban, according to the Ministry of Agriculture, Irrigation and Water Development, was imposed two years ago to ensure that the country stocks adequate.