The Reserve Bank of Malawi (RBM) says a tailored monetary policy could help to deal with the economic challenges the country is facing.
In its Market Intelligence Report for December 2024, the RBM said due to varied global and domestic economic trends, tailored monetary policy can play a critical role to address the underlying challenges.
Reads the report in part: “For Malawi, tackling food inflation and maintaining exchange rate stability require concerted efforts in boosting agricultural output and safeguarding macroeconomic resilience.
“International development, such as fluctuating oil prices and geopolitical risk, further highlight the importance of proactive strategies to enhance economic growth and ensure sustainable price stability.”
The report comes at a time tight monetary policy seems to have failed to curb inflation, with food inflation averaging 40.2 percent in 2024.
Economist and former Monetary Policy Committee member Frederick Changaya welcomed the approach, but said Malawi’s inflation is supply driven.
He said: “Malawi’s case is unique because our inflation is mainly food-driven, which is all about production challenges and to address that we need to scale up our production initiatives to increase supply. The tightening monetary stance is counterproductive.”
Changaya, who is also National Working Group on Trade Policy chairperson, urges review of the monetary policy to respond to the unique needs of the economy.
In a separate interview, Chamber for Small and Medium Enterprises Association executive secretary James Chiutsi commended the approach, saying the country’s economy can stabilise if policies support production to enhance import substitution.
“To achieve that, agricultural production should get the necessary support to ensure production is improved and result in high-value products that will substitute imports while stabilising prices,” he said.
RBM Governor MacDonald Mafuta Mwale said earlier that his focus will be on a monetary policy that will incentivise the private sector to produce and gradually reduce the control approach as the economy responds.
He said the country’s problem is that of limited capacity to produce and export to earn foreign exchange.
Said Mafuta-Mwale: “Monetary policy is largely to do with demand management, but let’s face it; this has limited scope of success if not fully supported by supply boosting initiatives.”
He promised to work with a selected category of stakeholders whose efforts can have a direct bearing on inflation management and forex generation.
Inflation averaged 32.2 percent in 2024 from 28.8 percent in 2023 although the policy rate was tightened from 24 percent to 26 percent in 2024.
In 2025, RBM projects that inflation will average 24 percent.
