The Rserve Bank of Malawi (RBM) projects the 2021 inflation at 7.8 percent, a target which is 0.8 percentages points lower than the 2020 inflation of 8.6 percent
In its first monetary policy statement published last week, the central bank noted that the inflation outlook in the medium-term remained broadly unchanged from what was envisaged during the fourth 2020 Monetary Policy Committee (MPC) meeting.
Said RBM governor Wilson Banda in the statement: “Headline inflation decelerated to an average of 7.5 percent in the fourth quarter of 2020 from 7.6 percent in the third quarter, driven by a decline in food inflation.
“In contrast, non-food inflation increased in the quarter, albeit marginally, due to effects of the upward adjustment in domestic fuel pump prices effected in mid December 2020. The bank, thus, forecasts headline inflation to average 7.8 percent in 2021.”
The current inflation projections are also in line with the bank’s medium-term objective of five percent inflation, with a symmetric band of two percentage points.
In Malawi, maize, as part of the food component, impacts the country’s economy given that it constitutes 45.2 percent of the Consumer Price Index, an aggregate basket of goods and services used in computing inflation.
Meanwhile, the Malawi Vulnerability Assessment Committee estimates that 2.62 million people or 15 percent of the country’s population will be food-insecure between October 2020 and March 2021.
Alliance Capital Limited research manager Bond Mtembezeka said in an interview on Sunday that the target is feasible.
He said: “The economy is battling the Covid-19 pandemic. Aggregate demand is expected to remain weak and the maize outlook seems somewhat favourable at this point and fuel prices on the global market will largely remain stable.”
Meanwhile, the central bank has maintained the policy rate—the key lending rate of the central bank to commercial banks—at 12 percent, a decision meant to contain the impending inflationary pressures whilst at the same time providing space for supporting recovery of the economy in the wake of the second wave of the Covid-19 pandemic.
The MPC also maintained the Liquidity Reserve Requirement (LRR)—a fraction of bank deposits that commercial banks are required to keep at the central bank—on domestic and foreign deposits at 3.75 percent and the Lombard Rate at 20 basis points above the policy rate.
In arriving at these decisions, the governor said the committee noted that the inflation outlook has remained broadly unchanged from what was envisaged during the fourth 2020 MPC.
“The MPC also noted that there is need to allow the impact of the November 2020 policy rate reduction to transmit through the economy,” said the governor.
