International Monetary Fund (IMF) has urged the Reserve Bank of Malawi (RBM) to proceed with caution by raising the policy rate gradually to avoid jeopardising economic recovery.

In its latest analysis of economic performance in sub-Saharan Africa, the global lender said that a tight monetary policy is now inevitable as inflation, currently at 25.9 percent, is on the rise, a situation that has seen the Reserve Bank of Malawi (RBM) and other central banks across the region raising interest rates in response to rising inflation, capital outflows and currency depreciation.

Banda: Landscape
keeps changing

But the IMF said in Malawi, where domestic demand pressures are acute and inflation is high, the monetary policy may need to be tightened faster or more decisively.

Reads the brief in part: “Where monetary policy credibility is weak, the currency is depreciating rapidly and foreign exchange reserves are shrinking, monetary policy may need to tighten.”

RBM Governor Wilson Banda admitted during a Monetary Policy Conference in Lilongwe last month that lingering Covid-19 pandemic-related supply bottlenecks, coupled with the impact of the Russia-Ukraine war on commodity prices as well as other domestic challenges, have put significant pressure on prices in Malawi.

He said as a result, the RBM, just like most central banks, is faced with a policy trade-off of stabilising inflation and supporting economic recovery.

“Monetary and exchange rate policy landscape keeps changing,” said Banda.

The policy rate has been declining since November 2016 and was stable at 13.5 percent for the most part of 2020 before being revised downwards to 12 percent in November 2020.

The post IMF tips Malawi on monetary policy stance appeared first on The Nation Online.