RBM moves to adopt neutral policy stance
Reserve Bank of Malawi (RBM) says given the uncertainty surrounding the macroeconomic outlook, the central bank will adopt a neutral stance and react whenever necessary.
In its January 2023 Market Intelligence Report published on Friday, RBM said while international prices of a number of commodities continue to drop, some country-specific factors could affect the impact of slowing global inflationary pressures.
Reads the report: “Existence of the United Nations-backed agreement, which is allowing Ukraine to export grains to other regions of the world and weak demand, resulting from deteriorated purchasing power continues to drive down international prices for a number of commodities.”
On the domestic front, non-food price pressures have been strengthening reflected in the increase in non-food inflation from 18.6 percent in December 2022 to 20.4 percent in January this year, according to the National Statistical Office (NSO).
On the other hand, food inflation eased to 30.5 percent in January this year from 31.3 percent in December 2022, reflecting interventions on hunger.
Regardless of the development, headline inflation increased to 25.9 percent in January 2023 from 25.4 percent in the previous month, according to NSO.
Reacting to the RBM stance, Malawi Confederation of Chambers of Commerce and Industry president Lekani Katandula said this means the Monetary Policy Committee (MPC) found neither a compelling case to raise or drop interest rates or liquidity reserve requirements, as such, decided to hold all the parameters constant.
“They want to observe the economic developments for a longer period before a decision can be made to take a different direction,” he said.
National Working Group on Trade Policy chairperson Frederick Changaya said the neutrality stand is optimal for the economy as “we are takers of the world shocks”.
“As the war Russia-Ukraine war rages on, prices of so many things other than for food stuffs we are getting from Ukraine remain elevated,” he said.
Changaya, who is also Applecore Grain and Milling Limited managing director, said the key is to end the war and create stability in the markets.
“The same will calm down the exogenous inflation and macroeconomic stability required for our economies to function,” he said, adding that this could reduce the country’s import bill and improve terms of trade.
But economist Bond Mtembezeka said a neutral stance means uncertainty both on the part of policy direction and turn of economic events.
He said this means that the economy is hanging in a balance and the central bank is not sure how macro-economic factors will evolve over the short to medium-term.
“The central bank has elected to react only when a trajectory is clear enough,” he said. At its first 2023 MPC meeting, RBM maintained the policy rate, the rate at which the central bank will pay or charge commercial banks for their deposits or loans, at 18 percent.
