Consumers, SMEs rue RBM policy stance

Consumers, SMEs rue RBM policy stance

Consumers and small and medium enterprises (SMEs) have expressed reservation with the stance by the Reserve Bank of Malawi (RBM) to hold the policy rate, a key driver of interest rates on loans, at 24 percent.

In a statement of the Fourth Monetary Policy Committee (MPC) on Friday, RBM Governor Wilson Banda justified the move, saying the policy rate will be tightened until a sustained declining trend in inflation is achieved.

RMB head office

But speaking in an interview on Friday, Chamber for Small and Medium Enterprises Association executive secretary James Chiutsi said small businesses expected a reduction in policy rate, saying their businesses are crumbling.

He said: “But knowing the economic reality on the ground, we accept the decision reluctantly.

“Malawi’s interest rates have always been high and small businesses can only survive with rates much lower than 24 percent.”

Consumers Association of Malawi executive director John Kapito said in an interview on Saturday that looking at the present circumstances, consumers are not happy with the central bank’s decision.

He said the country’s interest rates are beyond what the market can hold and there is no need to celebrate.

But in a written response on Friday, economist Bond Mtembezeka said the stance by RBM was expected, adding that RBM has taken a cautionary response.

He said: “Inflation has come down although just once. If the disinflation continues, then we should see the policy rate revised downwards. However, upside risks still persist and strongly.”

In the statement, Banda said in arriving at the decision and mindful of the weak domestic growth, the MPC considered the recent moderation in inflationary pressures.

Inflation rate is currently at 27.8 percent as of September this year, according to the National Statistical Office, a drop from 28.6 percent in August.

However, Banda said the committee noted upside risks to the inflation outlook that included exchange rate movements, increases in crude oil prices and adverse weather conditions.

He said: “The committee noted that inflationary pressures had somewhat abated during the third quarter of 2023, resulting in a marginal slowdown in average headline inflation to 28.2 percent from 28.4 percent in the previous quarter.”

During the last MPC meeting, RBM projected annual inflation to average 29.5 percent in 2023, which was higher than 24.5 percent forecasted during the previous MPC meeting.

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