RBM Maintains Policy Rate at 13.5%

RBM Maintains Policy Rate at 13.5%

The Reserve Bank of Malawi has decided to maintain the Policy Rate at 13.5 percent on the basis that the economic outlook points to low growth prospects in 2020 among others due to the COVID-19 pandemic.

This came out in a statement by the Monetary Policy Committee following its third meeting this year on 30 and 31st July.

The statement signed by Chairperson of the Committee also Governor of the Reserve Bank Dr. Wilson Banda also notes that it is hard to predict the magnitude of the decline citing uncertainty regarding the prevalence and duration of the COVID-19 pandemic.

The Committee also maintained the Liquidity Reserve Requirement (LRR) ratio on both local and foreign currency deposits at 3.75 percent.

MPC however notes that there are emerging upward risks to the medium-term inflation path, despite the fact that inflation developments were favorable in the first half of the year.

Meanwhile, economic activities have slowed down leading to a lower projection of GDP for 2020, reflecting the effects of COVID-19 pandemic on various sectors of the economy.

The statement indicates that International Oil prices recovering Brent crude oil prices rose to around US$43 per barrel by mid-July 2020 from US$22.40 per barrel at the end of March 2020.

The rise in prices follows easing up of travel restrictions in some economies across the globe.

Meanwhile, Brent crude oil price is projected to average US$40 per barrel in 2020 and US$45 per barrel in 2021, before rising to US$50 per barrel in 2022. Domestic growth to slow down Growth is projected to fall to 1.9 percent, 3.6 percentage points lower than the earlier forecast of 5.5 percent.

Economic Association of Malawi’s Lewis Chiwalo however feels the development dopes not reflect the economic situation of the country, he describes as bad.

Chiwalo suggests a 10% Policy Rate could have been commendable and a possible improvement to the country’s economy at large.

“This could make sense in a country with a good economy not ours. We need to accept that our economy is bad and this will only lead to economic strangulation. At least if it was taken down to 10%, businesses could have improved on the market eventually, improving the country’s economy at large, explained Chiwalo.

MPC however projects Inflation to be at 9.8 percent which is higher than the medium-term inflation target of 5 percent.

The adopted policy stance is therefore considered appropriate to contain the impending inflationary pressures whilst at the same time providing space for supporting recovery of the economy, in the wake of the COVID-19 pandemic, according to the Monitory Policy Committee.







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