The Reserve Bank of Malawi (RBM) has revised upwards its 2021 inflation rate projection to an average 8.8 percent.
This represents 0.4 percentage points higher than the earlier projection of an average 8.4 percent and 1.2 percentage points higher than the 7.6 percent projected during the first Monetary Policy Committee (MPC) Meeting.
In its statement of the Third MPC Meeting signed by RBM Governor Wilson Banda, the central bank said the revision is due to an increase in non-food inflation forecast, partly reflecting the impact of imported inflation and the pass-through of the kwacha depreciation in the second quarter of 2021.
Reads the statement in part: “Headline inflation rate rose for a second successive quarter in the second quarter 2021.
“Pressures on headline inflation rate emanated from both food and non-food inflation, which increased in the second quarter compared to the first quarter.”
However, to balance the efforts of managing the impending inflationary pressures as well as the adverse effects of the recent Covid-19 pandemic restrictions, the committee decided to maintain the policy rate at 12 percent, the Lombard rate at 0.2 percentage points above the policy rate, and the liquidity reserve requirement (LRR) ratio on both local currency and foreign currency deposits at 3.75 percent.
In an interview, Malawi University of Business and Applied Sciences economics associate professor of Betchani Tchereni said maintaining the rates is important to enhance the expansionary policy where the country needs to have financial resources that are cheaper and readily available.
He said: “We are in a situation that needs investment funding also those for consumption. Although there has been a slight increase in interest rates, we are in a situation where with Covid-19 the economy has shed off jobs and slowed down businesses.
“We have to set the financial ground right for investors to use and produce within the country.”
Meanwhile, National Statistical Office show that Malawi’s year-on-year headline inflation inched up by 0.2 percentage points to 9.1 percent in June from 8.9 percent on account of rising food prices and transport costs.