MCCCI urges preferential monetary policy stance
At a time the Reserve Bank of Malawi (RBM) continues to maintain a tight monetary policy stance to curb inflation, businesses has said adopting a preferential monetary policy stance would help the economy to spur production.
The central bank maintains that monetary policy, a key driver of interest rates on loans, will remain tight until a sustained declining trend in inflation is achieved.
This is happening at a time businesses want policies that would help support real gross domestic product growth through credit expansion to supports private expansion and investment.
Speaking during the RBM Monetary Policy Technical Forum in Blantyre yesterday, Malawi Confederation of Chambers of Commerce and Industry director of business environment Madalitso Kazembe said the current interest rate environment is not ideal for businesses to invest more.
She said: “It is a good thing that the policy rate has been maintained at 26 percent, but interest rates are still high.
“We still have concerns on the development of the sector.”
Kazembe said while RBM is targeting monetary policy and subdued demand for money on the market, there is need to allow investment to grow.
He observed that while the private sector is key to generating foreign exchange, it has been struggling to produce for the export market due to high cost of finance, among others.
RBM figures show that merchandise trade deficit has widened further to $507.4 million (about K887 billion) in the first quarter of 2024 from $495.8 million (about K868 billion) in the preceding quarter on account of a drop in exports which outweighed imports.
During the same period, foreign exchange reserves have declined to $155 million (about K271 billion) from $248.3 million (about K434 billion), according to RBM data.
The development shows that external sustainability remains a pressing challenge in the country, reflecting rising import bill and limited import substitution.
Financial Market Dealers Association president Leslie Fatch said in an interview yesterday that while split policy rate may be an incentive to production, there is need for more engagement on the policy direction.
“We should look at the impact of the policy direction as well and any other incentives that would help to induce production,” he said
But RBM director of economic policy and research Kisu Simwaka said a split policy is not a solution, observing that the main problem that is driving up interest rates is inflation.
“With high inflation, interest rates cannot be low. We need to ensure that inflation comes down and once it has come down sustainably to single digit, interest rates will come down, he said.
Meanwhile, headline inflation has decelerated from 34.5 percent in December 2023 to 31.8 percent in March 2024.
The outturn was driven by the moderation in both food and non-food inflation. Food inflation declined to 38.8 percent in March 2024 from 43.5 percent in December 2023 while non-food inflation edged down to 22.2 percent in March 2024 from 22.8 percent in December 2023.
RBM projects inflation to average 30 percent in 2024.
