Economics Association of Malawi (Ecama) has cautioned against prematurely easing monetary policy, arguing that maintaining the current restrictive stance can help to consolidate progress towards price stability without necessarily raising interest rates further.
Ecama president Bertha Bangara-Chikadza said this in an interview in reaction to an International Monetary Fund (IMF) statement issued last week, which called for sustained fiscal consolidation and tighter monetary policy as part of reforms underpinning a prospective Extended Credit Facility (ECF).
Following discussions in Lilongwe from September 22 to October 6, the IMF acknowledged progress in domestic revenue mobilisation, expenditure control and pricing reforms.
Bangara-Chikadza, who also teaches economics at the University of Malawi (Unima) said tighter monetary policy does not necessarily mean further interest rate increases, but could involve maintaining existing restrictive conditions until inflation risks have sufficiently diminished.
“Perhaps tighter monetary policy could simply mean maintaining the tighter monetary policy stance until the risks towards inflation rising are clear and figures support loosening,” she said.
Bangara-Chikadza warned that prematurely relaxing monetary conditions could reverse progress towards price stability, particularly amid external risks, including geopolitical tensions in the Middle East.
Her assessment comes amid concerns that additional monetary policy tightening could increase borrowing costs, discourage private investment and undermine economic recovery.
The policy rate, the rate at which commercial banks borrow from the central bank as a lender of last resort, is currently at 24 percent.
Unima economics lecturer Edward Leman argued that monetary policy had already been tightened sufficiently, warning that further restrictions could weaken investment and growth.
He said high public debt continues to exert pressure on domestic resources, making further adjustment necessary.
“Fiscal consolidation is a continuous process that Malawi must continue with, especially considering that the public debt is still high,” said Leman.
The debate comes as the government acknowledges persistent foreign exchange shortages that continue to disrupt supplies of fuel, medicines and other essential commodities.
In a statement on Friday, Minister of Information and Communications Technology Shadric Namalomba said the government was engaging development partners, exporters and the private sector to identify immediate and long-term solutions to the country’s challenges, particularly foreign exchange shortage which has affected importation of fuel.
