High inflation, kwacha depreciation to persist

The run-away inflation and the continued depreciation of the kwacha will persist in the foreseeable future as evidenced by the yet-to-be introduced K2 000 banknote, economists have said.

But Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira has argued that the banknote will act as a store of value and has no impact on future inflation rate, which is currently at 20.1 percent as of October 2016, according to the National Statistical Office (NSO).

At a news conference in Lilongwe two weeks ago, RBM Governor Charles Chuka announced the introduction the note on December 19 2016 as a solution to some of the prevailing economic conditions, including minimising issuance costs and increasing operational efficiency.

However, economists believe the introduction of a K2 000 note signals acceptance by RBM that persistent high inflation levels and depreciation of the kwacha are here to stay.

In an e-mailed response on Wednesday, Zimbabwe-based former Economics Association of Malawi (Ecama) president Thomas Chataghalala Munthali observed that the introduction of the note shows that the RBM appreciates that inflation levels and currency depreciation will continue for a while.

However, he believes projections into the future are based on existing circumstances, saying there is a possibility that the macroeconomic environment can change positively faster than envisaged if the right macroeconomic environment is restored.

He said in the meantime there is no basis that the new bank note will fuel inflation directly but it can be a basis of speculation that the macroeconomic environment is in bad shape; hence, putting pressure on foreign exchange and fuel inflation due to high costs of imports.

Weighing in, Catholic University head of economics department Gilbert Kachamba noted that other than aiding quantitative easing and saving printing costs, the note might have medium and long-term inflationary pressure.

“In the short run, the impact will be insignificant, but in the medium to long-term people will respond and will demand more money; hence, inflationary,” he said.

In an earlier interview, Ecama president Henry Kachaje said the introduction of the new banknote is long overdue considering how prices of goods and services have risen in the recent times.

For three months in a row, Malawi’s year-on-year headline inflation has continued to decline, thanks to the drop in food prices, according to NSO.

But Chuka said RBM will boost ongoing efforts to popularise the use of online banking, electronic payments systems, including the use PoS devices which will be made possible through the National Switch (Nat Switch). n