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RBM positive on inflation

Reserve Bank of Malawi (RBM) Governor MacDonald Mafuta-Mwale says the central bank sees inflation moderating in 2025 despite  prevailing risks.

Speaking during a press briefing on the sidelines of the 2025 First Monetary Policy Committee Meeting in Blantyre on Thursday, he said the central bank is banking on improved harvests and government food relief distribution exercise in hunger-stricken areas.

Mwale, however, said while this is not sustainable in the long-term, the black market is also fuelling inflation.

He said: “We do not entirely base our projection on maize distribution, but as a stopgap measure to support people of Malawi, it will have an impact on maize prices. We are also expecting a better crop due to conducive weather.

“This is not sustainable; hence, the need to produce enough and export.”

While maintaining the five-percent inflation target in the medium-term, Mwale said in terms of the numbers, food prices are the main issue behind rising inflation.

Meanwhile, the official exchange rate has remained at K1 751 as fixed in early 2024 while the gap with the parallel-market rate has steadily increased.

The informal exchange rate has continued to rise, hitting an average of K3 500 against the dollar on the parallel market.

Consequently, most current account transactions have continued to use the parallel-market rate, leading to a sharp rise of imports.

Published National Statistical Office data shows that after reaching a peak of 35 percent in January 2024, headline inflation fell to 27 percent in November 2024 before accelerating to 28.1 percent in December 2024.

This situation has been worsened by a significant increase in the money supply, which grew by 51 percent year-on-year in October 2024, driven in part by monetary financing of the fiscal deficit.

Consequently, Malawi has emerged as one of the economies with the highest inflation, a situation Consumers Association of Malawi executive director John Kapito said is due to failure to invest in productive sectors for export.

 He said: “Malawi has failed to produce food to feed itself and for export. It will take Malawi a long time from the current high inflation rates if we continue spending resources we do not have.”

Meanwhile, the World Bank, in its Malawi Economic Monitor (MEM), published on Thursday, observed that rising food prices due to weak domestic production, coupled with the continued growth of the money supply, will likely keep inflation at or above 25 percent in 2025.

Reads the MEM in part: “Further increases in energy and other utility prices could exacerbate inflation. Depending on inflation developments, interest rates may also remain elevated further, pressuring the interest rate bill.

“Additional monetary financing of the fiscal deficit poses an especially serious risk.”

On Thursday, RBM mantained the policy rate,  a key driver of interest rates on loans, at 26 percent per annum.

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