The Reserve Bank of Malawi (RBM) yesterday maintained the policy rate, the rate at which the central bank will pay or charge commercial banks for their deposits or loans, at 14 percent.
In its statement of the Third Monetary Policy Committee (MPC), the committees chairperson RBM Governor Wilson Banda said the bank stands ready to adjust the policy rate upwards should inflationary pressures persist.
However, he said the bank has revised upwards the 2022 annual average headline inflation to 23.2 percent, from an earlier forecast of 12.3 percent.
Banda said: “The decision has been necessitated by the need to allow more time for the impact of the April 2022 policy rate increase to transmit through the economy.
“Looking ahead, pressures on inflation are likely to continue, largely due to persistence of supply-related shocks to food and energy prices arising from the war in Ukraine, impact of the upward adjustment in domestic fuel pump prices effected on June 23 2022, a seasonal increase in prices of domestically-produced agricultural food items, exchange rate pressures, and persistent fiscal slippages. The above factors have shifted upwards the trajectory for inflation.”
Malawi’s year-on-year inflation accelerated to 23.5 percent at the end of the second quarter, up from 14.4 percent recorded at the end of the previous quarter.
During the quarter under review, headline inflation averaged 19.4 percent, from 13.1 percent the previous quarter.
According to RBM, the increase represented the combined effect of rising costs of domestic fuel prices, pass-through of exchange rate depreciation, price mark-up shocks on domestically-produced agricultural food commodities induced by the high costs of fertilisers, rising global food prices and speculation of low food production following unfavourable weather patterns during the 2021/22 agricultural season.
In an interview yesterday, Consumers Association of Malawi executive director John Kapito said while the revised inflation projection spells doom for Malawians, how authorities work to navigate through the challenges will have a final fate on consumers.
He said: “I foresee Malawi struggling to stop the current high cost of living. However, government can do better by cutting out some of its huge unnecessary and unproductive expenditures. We need to realign our economy with realities on the ground quickly.”