RBM policy affects inflation fall
The Reserve Bank of Malawi (RBM) has said its policy to arrest the depreciation of the kwacha has affected inflation fall.
In a telephone interview last week, the central bank said it is in a give-and-take situation with its prudent policy effectively controlling appreciation of the local currency, but also retarding the fall in inflation.
RBM has since early this year been buying forex from the local market to buffer its gross reserves, a situation that has affected the appreciation of the kwacha.
The central bank however argued that if the kwacha was left to appreciate freely it would prompt appreciation of the dollar.
However, RBM has argued that after the appreciation of the kwacha the local currency would depreciate, a situation that would lead to inflationary pressure.
RBM, however, said although the fall of the country’s Consumer Price Index (CPI) is not as expected, Malawi’s inflation is not as worse as in other countries after exchange rate liberalisation.
Apart from that, authorities have blamed the Malawi Energy Regulatory Authority (Mera) for not reducing fuel prices since February.
The Monetary Policy Committee (MPC) expects inflation to stand at 20.5 percent in December 2014.
However, a local advisory firm, Nico Asset Managers in its July 2014 economic report has pointed out that due to the reduction in the country’s policy rate from five percent to 22.5 percent, there will be an increase in inflationary pressures due to an increase in liquidity which in turn will lead to demand pull inflation.
But RBM has defended the decision, arguing that the policy rate reduction is a balancing act between economic growth and inflation.
Comparatively in the region, Malawi’s inflation under the Common Market for Eastern and Southern Africa (Comesa) Harmonised Consumer Price Index (HCPI) still stands out as one of the highest, but has been falling fastest among the members of the region.
