The Reserve Bank of Malawi (RBM) has maintained the policy rate at 26 percent, but says the country’s inflation, which is on a downward trajectory, faces major risks to its outlook.

In its statement after the Second Monetary Policy Committee (MPC) meeting on Friday, the committee’s chairperson and RBM Governor Wilson Banda said in the face of the risks, the central bank projects inflation rate to average 30 percent in 2024.

However, at 30 percent, the central bank’s projection is far above Treasury’s 23.4 percent.

The MPC said it kept the policy rate, a key driver of interest rates on loans, at 26 percent following the declining inflation, which RBM admits remains high.

Said Banda in the MPC statement: “The MPC welcomed the recent deceleration in headline inflation from 34.5 percent in December 2023 to 31.8 percent in March 2024.

“The committee noted high money supply growth, underperformance of the export sector and higher global oil prices as major risks to the inflation outlook.”

During the period under review, January to March 2024, money supply growth remained high at 47.8 percent, a rise from 32.2 percent in the fourth quarter of 2023.

On the other hand, merchandise trade deficit further widened to $507.4 million (about K888.5 billion) in the first quarter of 2024 from a deficit of $495.8 million (about K868.2 billion) in the preceding quarter.

The outturn was on account of a wider drop in exports which outweighed a decline in imports.

On the global oil market, Brent crude oil prices averaged $83.15 (about K146 000) per barrel in the first three months of 2024 from $84.03 (about K147 000) per barrel registered in the fourth quarter of 2023 despite a surge in February 2024 influenced by the ongoing concerns of voluntary Opec+ countries production cuts.

Economics Association of Malawi acting senior economist Lucious Pawa said in an interview yesterday that RBM’s decision to maintain the policy rate in the face of elevated inflation risks “is a prudent move” considering the recent deceleration in inflation.

“The committee’s cautious approach reflects a commitment to balancing inflation management with economic stability, particularly in light of factors such as high money supply growth, potential impacts of lower crop harvests and higher global oil prices.”

In an interview on Saturday, Mzuzu University economist Christopher Mbukwa observed that while authorities continue to find solutions to addressing high inflation, RBM’s decision to continue with a monetary policy could affect economic activities.

He said: “The authorities continue to find solutions to addressing high inflation, including raising the liquidity reserve requirement ratio for domestic currency to arrest the money supply growth.”

Consumers Association of Malawi executive director John Kapito said consumers expected a decrease in the policy rate with the small decreases on inflation.

In 2023, inflation rate averaged 28.8 percent with RBM targeting to get to single digit inflation averaging plus/minus five percent by 2026.

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