RBM outlines inflation risks
Reserve Bank of Malawi (RBM) says the country’s inflation rate, which is on an upward trajectory, faces considerable risks which could keep it elevated further than projected.
The central bank currently projects headline inflation to rise to 24.5 percent in 2023 as opposed to a disinflation of 18.2 percent that was predicted during the first Monetary Policy Committee (MPC) forecasting round and compared to an average outturn of 20.9 percent for 2022.
But in its Monetary Policy Report published on Tuesday, RBM said the revised inflation rate projection is subject to some upside risks which could worsen the inflation outlook.
The central bank said although inflation may slow down during the harvesting period in the current quarter, the moderation will likely be short-lived such that the lean period may set in earlier than normal.
Reads the report: “A faster-than-anticipated rate of exchange rate depreciation resulting from strengthening of key currencies of advanced economies in response to the aggressive tight monetary policy stance being pursued by central banks in those economies poses a challenge for our forecast.”
RBM also fears the higher-than-budgeted fiscal deficit outturn particularly following the need for government’s intervention to rehabilitate the damaged public infrastructure.
Malawi’s inflation has been on the rise owing to rising food and non-prices.
Already, year-on-year inflation for March was recorded at 27percent, an increase from 26.7 percent in February, according to the National Statistical Office.
Commenting on the projection, Catholic University of Malawi economics lecturer Hopkins Kawaye said that inflation could be on an upward trajectory this year on account of the weather- related shocks.
He said: “Inflation rise is now inevitable. As an agro-based economy, when produce is affected in any other way, inflation is also affected.
“The anticipated spending by government in view of the shock also poses a significant risk to the outlook.”
The International Monetary Fund has since projected that Malawi’s 2023 annual inflation rate will average 26 percent due to the rising commodity prices in the year.
In its April 2023 World Economic Outlook, the global lender underscored the need for the central bank to ensure that monetary policy focuses on keeping inflation down.
