The Reserve Bank of Malawi (RBM) has maintained the Policy Rate at 12 percent, a move Consumers Association of Malawi (Cama) has welcomed as it offers relief to consumers.

RBM Governor Wilson Banda said in a statement yesterday the decision was reached after a two-day meeting of the Monetary Policy Committee (MPC), which he chairs.

He said in the statement: “The committee resorted to retain the previous monetary policy decision to allow for continued economic recovery regardless of the inflation pressures which are deemed temporal.”

Banda: Inflation pressures are temporal

The Governor said the MPC also maintained Liquidity Reserve Requirement (LRR) ratio on domestic and foreign currency denominated deposits at 3.75 percent and the Lombard Rate at 20 basis points above the Policy Rate.

“In arriving at this decision, the committee noted that, although inflation pressures are mounting, the sources were considered transitory and likely to dissipate after the lean period.

“At the same time, there is need for policy support to entrench the recovery of the domestic economy from the Covid-19 induced slowdown,” said Banda.

He noted that though inflation moved into double digits in the fourth quarter of 2021 averaging 10.8 percent against a projection of 10.0 percent, the annual average headline inflation remained in single digit in 2021, at 9.3 percent, marginally higher than the projection of 9.1 percent.

However, he admitted that in the period ahead, pressures on inflation are likely to continue, mainly arising from a seasonal increase in prices of domestically produced food items, and imported inflation.

Reflecting on these pressures, Banda has since indicated the inflation path has shifted upwards compared to the fourth 2021 MPC forecasting round.

According to the new forecast, the annual average headline inflation for 2022 is now projected at 10.4 percent from an earlier forecast of 8.9 percent.

Reacting to the development, Cama executive director John Kapito yesterday described it as positive news to consumers, at least for now.

He said most consumers anticipated a tightening policy stance.

Kapito said: “In arriving at this decision, the RBM must have thought that by tightening the policy stance, they will be creating more challenges to Malawians.”

In a separate interview, Economics Association of Malawi executive director Frank Chikuta said it was expected that the Policy Rate would be maintained, given the tone set by the State of the Nation Address delivered by President Lazarus Chakwera in Parliament yesterday.

 “One would have expected the policy direction from authorities to still be geared towards supporting economy in terms of recovery,” he said.

RBM has kept the Policy Rate, the rate at which banks borrow from the central bank as lender of last resort, at 12 percent since 2020.

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