Medium-term inflation rate target difficult, says Fimda

Financial Market Dealers Association (Fimda) has cast doubt on the authorities’ desire to achieve medium-term inflation target of six percent, citing contradicting fiscal and monetary policy directions.

Speaking on the sidelines of an interaction with Association of Business Journalists (ABJ) members in Blantyre on Friday, Fimda president Leslie Fatch said, for instance, the current disbursement of social cash transfer or mtukula pakhomo to vulnerable households is inflationary.

He said: “I think it is difficult for the inflation rate to reach the targeted six percent within two years, looking at the trend of inflation rate and economic environment.

“While monetary authorities are doing something positive to try to curb inflation, activities on the fiscal side are not as supportive.”

Fatch cited the disbursement of K6 billion social cash transfer funds, saying the intervention is costly and inflationary, adding that authorities could have used other options of supporting the vulnerable people.

“We think government could have used the funds to invest in production and distribute the produce to the needy in form of relief food because in that way demand is not affected and there is no extra pressure on inflation,” Fatch said.

Inflation rate was recorded at 33.5 percent in February this year, a slight drop from the previous month’s 35 percent, according to the National Statistical Office, with monetary authorities putting the medium-term inflation target at five percent.

Secretary to the Treasury Betchani Tchereni earlier justified the disbursement of social cash transfer, saying much as it is inflationary, government is prioritising people’s lives.

“Many economists think it is inflationary. I also think so, but remember we are talking of people’s lives and where people’s lives are at stake, government should make sure it protects the lives no matter what. During the launch of the Malawi Economic Monitor 2024 in Blantyre, World Bank country manager Hugh Riddell said it was necessary for government to assist the vulnerable people in cities to meet their social needs, but called on authorities to maintain policies that could aid the economy turn the corner and recover from the 2023 shocks.