Think-tank speaks on monetary policy stance
The Economist Intelligence Unit (EIU) has urged the Reserve Bank of Malawi (RBM) to consider no further adjustments in monetary policy despite intensifying inflationary pressures.
In its first quarter country report for Malawi, EIU said though the policy rate and inflation rate remain above the RBM target of plus or minus five percent, it is now prudent to ease monetary policy.
EIU, a research and analysis division of the Economist Group of the United Kingdom, says adopting a tightening stance now will be retrogressive to economic growth.
Reads the report in part: “We expect the monetary policy committee to maintain the policy rate at 18 percent at its next meeting to allow inflation to retreat, although we expect inflation to stay above target.
“A looser monetary policy in the second half of 2023 will drive increases in private consumption and a continued monetary policy loosening will support real gross domestic product [GDP] growth through credit expansion which supports private consumption and investment.”
The second 2023 Monetary Policy Committee Meeting is currently underway from yesterday to today.
According to the EIU, though money supply spiked in 2022, it will also moderate in this year going forward, thereby yielding a modest real interest rate sufficient to attract investment.
In view of rising inflation since the second quarter of last year, the central bank resorted to gradually tightening the monetary policy by raising the policy rate to from 12 to 18 percent in October last year.
Economic statistician Alick Nyasulu said in an interview on Tuesday that instead of tightening the monetary policy, authorities should instead deal with rising debt which is a big threat to government finance and a channel through which rates actually increase.
On his part, economist Exley Silumbu said price stability is critical, observing that high prices are dealing a heavy blow to consumers and enterprises.
He, however, noted that inflationary pressures are not pushed by growth in money supply, low export and manufacturing base, saying addressing these would help tame inflation and stabilise prices in the short to medium-term.
Meanwhile, RBM has indicated that the inflation outlook remains under pressure and may push the central bank to further tighten the policy stance.
