RBM fears rising oil prices

 The Reserve Bank of Malawi (RBM) has singled out the ongoing war between Russia and Ukraine as a cause for concern, stating that the higher-than-anticipated oil prices induced by the-geopolitical-tension could delay the convergence of inflation to medium-term targets in the country.

RBM, in its January Market Intelligence Report issued on Tuesday, indicated that the development could compel central banks to implement less accommodative monetary policies that could jeopardise economic recovery plans.

Reads the report: “If central banks in advanced economies, particularly the United States of America decide to tighten their monetary policy stance, this could also develop into a risk of currency depreciations in emerging and developing economies, which could fuel inflation pressures.”

The central bank was, however, quick to mention that domestically it will continue monitoring both domestic and global developments and take necessary action to mitigate any risks to the inflation outlook that are perceived to be permanent.

Financial Market Dealers Association of Malawi (Fimda) president Mclewen Sikwese recently said as pressures on fuel prices escalate and with the kwacha under pressure, inflation rise is inevitable.

Already, Malawi’s rate of inflation has been rising lately owing to rising food and non-food inflation in the country.

According to the National Statistical Office, Malawi’s year-on-year headline inflation inched up by 0.6 percentage points to 12.1 percent in January from 11.5 percent in December.

During this year’s first Monetary Policy Committee (MPC) meeting, RBM Governor Wilson Banda also indicated that pressures on inflation are likely to continue, mainly arising from a seasonal increase in prices of domestically produced food items and imported inflation.

In view of the developments, the RBM, as custodians of the monetary policy, projected that headline inflation would average 10.4 percent in 2022, up from 8.9 percent projected during the fourth MPC meeting.

Meanwhile, the Economists Intelligence Unit (EIU) has projected that the inflationary pressures pose risks to accommodative monetary policy in the short to medium-term.

In a brief issued recently, EIU said it expects that there would not be any further easing of the policy rate as inflation rate remains above the RBM target of plus or minus five percent coupled with the depreciating exchange rate.

EIU, the research and analysis division of the Economist Group of United Kingdom, said it sees RBM adopting a tightening stance from this year as inflationary pressures build on the back of rising global oil prices and improved consumer sentiment.

The monetary policy, which guides the management of money supply and interest rates to meet macroeconomic objectives, is for now meant to support economic recovery from the Covid-19 crisis and stimulate further growth