The Reserve Bank of Malawi (RBM) has revised upwards the 2025 annual average inflation rate forecast from 27.4 percent to 28.5 percent, citing persistent upside risks to food prices.
In his presentation during the Monetary Policy Technical Forum in Lilongwe yesterday, RBM economist Chrispin Kamuikeni said the market expects inflation to close December 2025 at 32.4 percent, urging tight monetary policy to keep prices moderate.
He said: “Market inflation projection is that it will be at 32.4 percent by December 2025. Inflation remains primarily high due to supply side shocks, structural weaknesses and fiscal imbalances.
“Tight monetary policy stance has been instrumental in containing second round effects and safeguarding policy credibility.”
Kamuikeni said given the ongoing upside risks to inflation and the gradual disinflation, monetary easing at this juncture would be premature and reverse gains made on inflation.
The forum was held a few days after the Monetary Policy Committee (MPC) of the RBM maintained at 26 percent the policy rate, the rate at which commercial banks borrow from the central bank as lender of last resort.
The central bank also maintained the Lombard rate at 20 basis points above the policy rate and Liquidity Reserve Requirement ratio at 10 percent for domestic deposits and 3.75 percent for foreign currency deposits.
The decision came at a time inflation rate, the main driver of policy rate, has been easing for four months in a row since March this year and is now at 27.1 percent.
In her remarks, RBM director of financial markets, who is also Monetary Policy Technical Forum chairperson Chakudza Linje said the MPC observed upside risks, especially on food inflation emanating from agricultural production deficit, especially maize.
She said for this reason, apart from revising upwards inflation forecast, the economic growth forecast for 2025 has also been reduced from 3.2 percent to 2.8 percent.
On his part, RBM director of capital markets and microfinance supervision Mark Lungu said as the central bank, they are there to give the market realistic assumptions.
“As you can remember, during the last technical forum, we assessed that inflation would average 27.4 percent and this revision to 28.5 percent has considered the upside risks of inflation,” he said.
In an interview, Economics Association of Malawi executive director Esmie Kanyumbu commended the MPC for maintaining the policy rate for the third consecutive time, saying the consistency ensures stability on the market.
“We believe the decision by the MPC is good for the economy because the inflation outlook remains fragile. If the MPC was to react to temporary inflation trends, it would have affected market stability,” she said.
Meanwhile, economists have described the RBM decision to maintain the policy rate at 26 percent as a ‘cautious’ approach that realises the existing inflation risk, especially on rising maize prices.
In an interview yesterday, University of Malawi associate professor of economics Gowokani Chijere Chirwa observed that even though inflation is going down, high money supply and re-emerging maize price pressure still exert pressure on inflation outlook.
“There are still other issues to consider, for example, the amount of money [kwacha] in circulation is still going up,” he said.
Business Partners International country manager Bond Mtembezeka observed that upside risks of inflation remain strong largely due to continued instability of fuel and foreign exchange supply; hence, the need for RBM to be cautious.
The policy rate has been maintained at 26 percent for more than a year, leaving commercial banks lending rates as high as 36 percent, especially for risky borrowers.
