International Monetary Fund (IMF) says although the primary responsibility for restoring price stability lies with central banks, legislated government spending cuts or tax increases aimed at ensuring public debt sustainability can further ease inflation.
In its latest global economic outlook update, the global lender said this can help to reduce aggregate demand and reinforce the overall credibility of disinflation strategies.
Reads the update in part: “Central banks in economies with elevated and persistent core inflation should continue to clearly signal their commitment to reducing inflation.
“A restrictive stance with real rates above neutral is needed until there are clear signs that underlying inflation is cooling.”
In Malawi, upward pressures on prices have contributed to headline inflation easing to 27.3 percent in June 2023, a decrease from the 29.2 percent recorded in May 2023, according to National Statical Office.
Additional supply-related constraints to maize and other commodities on the domestic market induced inflationary pressures, contributing to food inflation rising to 37.2 percent in June 2023.
However, the Monetary Policy Committee of the Reserve Bank of Malawi increased the policy rate from 18 to 22 percent in April 2023 after noting that the inflation outlook had worsened since the last MPC meeting in February 2023.
Meanwhile, the Economist Intelligence Unit, a research and analysis division of the Economist Group of the United Kingdom, has projected that the policy rate will increase by 400 basis points to 26 percent amid rising inflation.
In its June 2023 country report for Malawi, the economic think-tank observes that Malawi’s foreign-currency shortages are making imports of food and fuel costly and could prompt currency devaluation, driving up inflationary pressures to an average 30.6 percent from an average of 21 percent in 2022.