The annual growth rate of broad money supply (M2) accelerated to 24.2 percent in the first quarter (Q1) of 2021 from 18.7 percent in the preceding quarter and 10.2 percent in the corresponding quarter of 2020, Reserve Bank of Malawi (RBM) data shows.
The RBM’s Financial and Economic Review indicates that the growth in M2 — a certain measure of the amount of money in supply in an economy— was explained by both quasi money (QM) and narrow money (M1) QM which contributed 14.2 percentage points to the M2 growth rate.
This was an increase from 9.2 percent and 2.1 percent in the preceding quarter and a similar quarter of 2020, respectively.
According to the RBM, on a quarterly basis, M2 grew by 4.8 percent which was K73.4 billion to K1.6 trillion in the first quarter of 2021 compared to 5.7 percent which was K83.3 billion in the preceding quarter.
The expansion was explained by both QM and M1, which rose by K67.5 billion and K5.9 billion to K850.8 billion and K756.9 billion, respectively .
Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said in an interview when money supply is rising with no increase in output, it can fuel some inflationary pressures.
He said: “In the case of Malawi, we have had the challenge of increasing money supply which is increasing demand for commodities. However, the commodities in demand are those that are imported, a development which on its own is a challenge.
“In this case then, we have the monetary policy side which is responding to the effects of Covid-19 but not the real sector [industrial and trade policy].”
Speaking separately, University of Malawi economics professor Ben Kaluwa said while money supply should not be an issue in an economy as long as it expands in line with nominal gross domestic product, the situation, if not carefully managed, may put pressure on the government, particularly on its efforts to tame inflation.
He, however, said the situation may lead to a price surge and spur private sector growth.
The RBM has since indicated that the monetary policy— the central bank’s action to manage money supply to reduce inflation and interest rate to ensure price stability—will aim at supporting the accumulation of international reserves and providing room for sufficient credit to the private sector.
