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Malawi monetary policy

The World Bank (Malawi office) has heaped praise on the country’s recent monetary policy, describing it as good for managing the economy.

World Bank country manager for Malawi Sandra Bloemenkamp made her impression in an interview with Business News in Lilongwe on the sidelines of the signing ceremony of a financial agreement worth $110 million (K2.75 billion) with the Malawi Government towards the Agriculture Sector Wide Approach (Aswap) and HIV and Aids interventions.

“I think [monetary policies] of the Reserve Bank of Malawi have been very impressive in the past three months.

“This is the first time in many years that monetary policy is being used as an instrument for economic management in Malawi,” said Bloemenkamp.

Her statement comes a month after the central bank devalued the kwacha by 49 percent followed by the upward revision of the bank rate from 16 percent to 21 percent last week.

The Joyce Banda administration, through RBM, has also liberalised the country’s foreign exchange market in an effort to reach early agreement with the International Monetary Fund (IMF) and unlock donor inflows.

And following the scrapping of kwacha peg to the dollar and other major trading currencies in May this year, the exchange rate market has continued to be determined by the market forces of demand and supply of foreign currency with RBM standing ready to support exchange rate adjustment using all available monetary policy instruments.

Added Bloemenkamp: “It is also important that the governor of the central bank independently decides, of course through the monetary policy committee (MPC) about these types of policy interventions to ensure that the macro-economy continues to perform quite well as it is right now.”

When called to corroborate World Bank’s stand on Malawi’s monetary policy direction, RBM governor Charles Chuka promised to call back, but did not and any further attempts to reach him proved futile as he was reported to be in a meeting.

His spokesperson Ralph Tseka could not be reached as his phone went unanswered.

But in a separate interview on Tuesday, professor of economics at Chancellor College Ben Kalua agreed with the World Bank, saying in the wake of the current monetary policy measures, “business is normal and there is no fire-fighting.”

But a monetary economist working with one of the local banks told Business News in an interview in Lilongwe that recent monetary policy developments have triggered a high cost of borrowing by the private sector which he said could essentially retard Malawi’s gross domestic product (GDP) target of 4.3 percent in 2012.

He also cautioned that with the recent hike in the bank rate, manufactures who are borrowing from local banks will incur huge cost of production which could force them to pass on to consumers; “hence, exerting pressure on the headline inflation rate”.

In justifying recent monetary policy measures, Finance Minister Dr. Ken Lipenga noted in a recent interview in Lilongwe that before the exchange realignment in April 2012, Malawi’s exchange rate was overvalued by around 60 percent which he said resulted into most foreign exchange transactions moving to parallel market.

The minister said the result was a shortage of fuel, pharmaceuticals and essential raw materials for the industry, leading to a decline in economic growth rates.

A 2012 government annual economic report has since indicated that for the rest of 2012 and onwards, price stability will remain the core objective of monetary policy formulation and implementation

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