The Reserve Bank of Malawi (RBM) has announced plans to shift its approach from controlling demand to ensuring stable supply by incentivising production to unlock export opportunities.
RBM Governor Macdonald Mafuta Mwale said this on Friday in Lilongwe during an economic symposium held as part of the central bank’s 60 years anniversary celebrations.
He said the new approach represents RBM’s shift from solely relying on monetary policy as a price controlling tool to a balanced approach, which will look at ways of promoting production to ensure stable supply on the domestic market.
Said Mafuta Mwale: “As we are moving forward, the celebration should be a point of reflection, we should try to see also how can the central bank complement what we do on monetary policy, which is largely demand management to issues of supply.
“Malawi only has one problem, which is production and exportation. Therefore, what I see going forward is really to come up with some strategies, some support to the private sector so that we see how we can invigorate the country on the production side.”
He did not outline the timeframe of the implementation of the proposed policy direction, but emphasised that Malawi’s economic challenges hinge on production deficiency, stressing that any boom in production would ensure stable supply on the domestic market.
The governor’s remarks come at a time some development economists are lobbying for a tailored monetary policy stance that prioritises economic expansion through lowering interest rates to spur private sector production and solve inflation challenges from the supply side.
In an interview, economist Frederick Changaya, a former member of RBM Monetary Policy Committee, described the approach as positive, saying concentrating on controlling demand cannot solve the country’s economic challenges.
He said: “Malawi’s situation needs an expansionary monetary stance because if we continue to tighten, we are only punishing the production sector and ordinary Malawians as the government will continue to borrow.
“In other words, tightening will only further dampen production which is already inflationary.”
Entrepreneur and business advisory and audit firm Grant Thornton Malawi chief executive officer Hastings Bofomo Nyirenda, is quoted as having said economic transformation is unattainable if interest rates remain high at above 35 percent, crowding out the private sector.
He said the RBM should be the first to adopt a policy stance that facilitates a favourable interest rate regime.
Said Nyirenda: “My point is that because of high interest rates, private sector players are failing to access capital and are closing down, resulting in job cuts and reduced taxes. If interest rates are lowered, the private sector will start producing and increase supply, eventually stabilizing prices.”
Nico Capital Limited chief executive officer Misheck Esau said the country’s economy is in a state of stagnation that requires a fundamental shift to achieve growth.
He said: “We need greater access to cheaper credit for production to happen.
“We need to produce to be able to export to generate foreign exchange.”
Speaking during the symposium, President Lazarus Chakwera challenged RBM to be strong enough to achieve macroeconomic stability in an environment associated with foreign exchange scarcity and high inflation.
He said though RBM has achieved a lot since 1965, it should develop tools that ensure financial sector stability and regulation to cushion economic shocks and facilitate economic growth.
Currently, the policy rate, the benchmark rate for the financial sector is at 26 percent, a situation that means commercial banks’ lending rates hover around 33 to 35 percent for risky borrowers such as individuals and small scale businesses.
