By Lovemore Khomo
Food scarcity due low production of maize and instability of exchange rate on the market is expected to push inflation rate to 24.5% in 2023, the Reserve Bank of Malawi has confirmed.
Reserve Bank Director of Economics, Policy and Research Dr. Kisu Simwaka made disclosure during Monetary Policy Technical Forum on Wednesday in Lilongwe.
He pointed out that the country’s inflation will continue to be in double digits up to 2025 considering global economic outlook.
Simwaka said the decision to raise policy rate to 22% also comes following instability of inflation rate that keeps to skyrocket than expected.
During Monetary Policy Committee meeting chaired by Reserve Bank Governor in 2022, projected that inflation rate will reach an average of 18.2% in 2023.
“It is important that policy rate be adjusted upwards to 22%, at same time also to consider adjusting upwards Liquidity Reserve Requirements-LRR on local currency denominated deposits up to 5.75%.” Simwaka explained.
He added that LRR adjustment decision has been made as the country experience high money supply growth which is above 30% and RMB want to contain that growth by increasing liquidity reserve requirement ratio.
According to Simwaka, the decision to raise interest rates and liquidity reserve requirement on kwacha deposits will help control a declining foreign exchange reserves while reduce pressure on kwacha.
The RBM has since expressed need to invest in necessary sectors like Agriculture and Mining and find solutions to perennial droughts and floods through irrigation which has potential to sustainably grow both agriculture production and exports, thereby generating much needed forex.
“We import a lot compared to export. Roughly, we import $3 billion and export $1 billion a year, that means we need to bridge that gap by having a right policy environment and one of it to control inflation.” Said Simwaka
