T
he Reserve Bank of Malawi (RBM) has clarified that the monetary policy only works on demand side; hence, it is coordinating with fiscal policy authorities to improve production and fix supply challenges.
This was highlighted during the bank’s Monetary Policy Technical Committee forum held last week and this week in Lilongwe, Blantyre and Mzuzu where the Monetary Policy Committee (MPC) policy decision of its first meeting of 2025 was disseminated to market players.
Key of the MPC decisions was maintaining the policy rate, the benchmark rate for interest rates, at 26 percent after inflation rate averaged 32.2 percent in 2024, but with some hope that the rate will ease to 24 percent in 2025 given the anticipated improved agricultural production.
In an interview, chairperson of the technical committee, who is also RBM’s director of financial markets Chakudza Linje, described the engagements as critical, saying the bank has used the forum to communicate and ensure clear understanding on how monetary policy works and the need to complement it.
Linje said: “The main lacking thing was the understanding that the monetary policy only works on the demand side so today we communicated the importance of having supply side also playing a role and the fact that the coordination is there only that we can’t see the results on short time.”
On the actual issues concerning the collaboration, Linje said it is mainly to do with how the bank is going to foster production and engage with other stakeholders.
“What we appreciate most is that the private sector understands the role that RBM plays and, also, what our mandate is.
“But there was also a lot of encouragement from what we have been doing and the direction we need to take going forward,” Linje said.
In his remarks, Financial Market Dealers Association (Fmda) president Lesley Fatchi while stressing the need for value addition, described production as key to solving the country’s supply challenges and foreign exchange scarcity issues as the produced products can either be used as import substitutes or as exports.
“I believe the first step is to promote the production from the mega farms aspects and that the industry players should go into processing or manufacturing to produce high value products which will substitute imports in the first time and later compete on regional or global markets,” Fatchi said.
Earlier, Economics Association of Malawi (Ecama) president Bertha Bangara-Chikadza observed the need for fiscal consolidation to enable the monetary policy efforts work, saying where the fiscal policy continues borrowing for consumption and spending on unnecessary projects the monetary policy interventions could not produce the intended results.
During the second monetary policy technical forum meeting in Blantyre in Friday last week, the capital markets association of Malawi also tipped the Bank to ensure that the country quickly transitions to the use of plastic money to cut back on the supply of dollars on the parallel market to stabilise the exchange rate.
The forums took place on February 6 in Lilongwe, February 7 in Blantyre and February 10 in Mzuzu, where experts from Ecama, Fmda, Chamber of Commerce, Capital Markets Association and academia, among others, participated.
