RBM comments on credit, inflation, GDP

The Reserve Bank of Malawi (RBM) has said private sector credit has been directed to productive use, inflation expectations will be reversed, and the country will this year achieve real economic growth.

RBM spokesperson Mbane Ngwira responding to a questionnaire on the central bank’s tight monetary policy and its effectiveness, said the stance is bearing fruits and will bring inflation to sustainable levels.

Ngwira also noted that the drivers of inflation point to a significant reversal in inflation expectations and with the continued prudent monetary and fiscal policies, we should see inflation coming down to sustainable levels.

“The main drivers of inflation in Malawi include the availability of maize, international oil prices and foreign exchange rate. The third crop estimates indicate that this year maize production has a surplus of 800 000 tonnes and consequently maize prices have dropped by more than 50 percent since January. International oil prices are projected to remain stable in the near future and the kwacha has appreciated at the back of increased foreign exchange reserves to an equivalent 3.5 months of imports.

“Private sector credit has been growing but at a slower pace, dropping from 25 percent to 10 percent which is an achievement. He noted that this is a result of not only high interest rates but a combination of different policy tools” said Ngwira.

He hinted that the objective of high interest rates was not to halt credit growth but to bring it in line with economic development hence redirect it to productive uses rather than consumption, arguing the monetary policy tools that have been employed have been significantly effective.

He further argued that the fact that money supply growth is below nominal GDP growth is a good indicator that the economy is on the recovery path, adding that this is a clear indicator that the country will attain real economic growth this year.

He noted that the combination of food availability and much improved foreign exchange reserves position being complemented by stable international oil prices should allay any fears on any insurgence of inflation in the short term.

The Monetary Policy Committee (MPC) last week maintained RBM’s base lending rate at 25 percent regardless of decline of inflation from a peak of 37.9 percent in February to 27.9 percent in June.

The meeting which was chaired by RBM Governor Charles Chuka noted that despite the high interest rates, private sector credit from the commercial banks continued to grow year-on-year above 20 percent since January but dropped to 10 percent and 11 percent, in May and June, respectively.