Rising prices hit consumers hard

Malawi’s inflation rate continues its upward spiral and has hit an 11-year high of 33.9 percent, a move that will likely continue to compel monetary authorities to raise the policy rate and directly impact on banks’ interest rates.

For Patricia Chitedze, a Blantyre-based small-scale business operator and a member of Chamber for Small and Medium Businesses Association, who obtained a K5 million loan from one of the commercial banks in 2021 to boost his business, the going is getting tougher with every passing day.

She is now paying more to service the loan, largely due to the continued rise in bank’s interest rate, which is now at 25.4 percent.

But Chitedze says her bank is charging her 32 percent interest rate because she is considered a “risky borrower”, a development that is eating into her working capital.

“Over the past three years, interest rates have been on the rise and this is affecting my capability to service the loan. With interest rates going up,  it has been difficult for me to service the loan and meet other responsibilities such as paying school fees and other basic needs for my family,” she said in an interview yesterday in Blantyre.

Inflation, the general rise of commodity prices, has been on the upward spiral since April this year, reaching 33.9 percent in August, according to the National Statistical Office (NSO), while food inflation has hit 42 percent.

The Reserve Bank of Malawi (RBM) has always argued that as long as inflation rate keeps on rising, they will have no choice but to raise the policy rate, currently at 26 percent.

Speaking in an interview yesterday, seasoned banking and finance executive and financial advisory consultant Misheck Esau said failure by some enterprises to settle loans is due to high interest rates, which require proper reassessment of the risk aspect.

He said: “I do not believe that banks lend to trick customers into default. This is the reality on the economic front.

“The economy has narrowed opportunities for many businesses. It is a challenge for businesses to thrive. Interest rates are too high and costs are going up all the time.”

Esau, who is CDH Investment Bank former chief executive officer and managing director, said both banks and borrowers should reassess risks before entering into these agreements.

“For businesses, diversified income sources are key when the economy is in this shape. For lenders, a diversity of customers from various sectors who are able to weather the storm is key,” he said.

Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said in an interview yesterday that interest rates are high, at a maximum of 36 percent, and most small businesses are being barred from accessing capital while others are struggling to repay loans.

“As we speak several of our members are struggling to service loans with banks and others have lost property that was used as collateral,” he said.

Consumers Association of Malawi executive director John Kapito said the continued rise in prices is an indication that something is wrong with the economy in general.

He said: “Inflation as high as 30 percent is a punishment to both businesses and consumers. For a poor country like ours, this is not acceptable.

“It means a complication of so many things.  It makes access to essential goods and services almost impossible.”

Kapito said although the government increased the general minimum wage by 80 percent from K50 000 per month to K90 000 per month, it still falls way short of supporting basic life for an average family.

He attributed the runaway inflation on the 25 percent realignment of the kwacha effected in May 2022 and another 44 percent devaluation in November 2023.

Economics Association of Malawi acting president Bertha Bangara-Chikadza noted that although inflation pressure remained elevated, it almost stabilised by averaging 33.03 percent between February and August.

She said both fiscal and monetary authorities need to take bold steps such as a continued tightening of the monetary policy and fiscal prudence.

On his part, RBM spokesperson Mark Lungu said yesterday that monetary policy alone cannot solve the current inflation challenges, adding that there are a combination of many factors that could help to solve the challenge.

He said: “Of late economies, including Malawi, experience a number of exogenous economic shocks from rising commodity prices to weather-induced shocks, as such, inflation sources have also multiplied.

“This is the reason there is a need for collaborative efforts from all key players to ensure we insulate the economy from these shocks.”

RBM earlier projected the inflation rate to average 30 percent from 28.8 percent in 2023, but looking at the figures, experts agree that it likely the central bank will miss the target.

Meanwhile, rising inflation has triggered cost of living crisis which has continued to torment consumers, thereby weakening their purchasing power and leaving many barely affording basic necessities.