Reserve Bank of Malawi (RBM) said on Wednesday July 5 2017 it has cut the benchmark lending rate by 400 basis points to 18 percent as consumer price inflation slows.
Malawi’s consumer inflation slowed to 12.3 percent year-on-year in May from 14.6 percent in April, the statistics agency said last month.
RBM has projected inflation rates of 10.7 percent and 8.5 percent in June and December 2017 respectively.
The central bank is banking hopes on better harvest and stability of both the exchange rate and international oil prices.
RBM Governor Dalitso Kabambe has said the downward trajectory of the inflation rate in the recent months is an indication that the Malawi economy is fast gaining ground in macroeconomic stability, which is conducive to economic growth.
In its fifth monetary policy statement titled Maintaining the Declining Path of Inflation, the central bank said it will continue supporting the disinflation process by keeping the policy rate—the rate at which commercial banks borrow from the central bank as the lender of last resort—above the headline inflation currently at 12.3 percent as of May 2017.
The monetary policy statement signed by RBM Governor Dalitso Kabambe said the central bank will also continue improving its communication with market participants to convey its commitment to price stability and enhance the transparency and credibility of its monetary policy to better anchor inflation expectations.
“Monetary policy will continue to be geared towards achieving price stability and a single digit inflation by the end of 2017, supporting a build-up of international reserves and providing room for sufficient credit to the private sector,” he said.
While pointing out that the outlook for inflation remains broadly positive following the good agriculture season and the subsequent expected bumper yield, Kabambe said the outlook is subject to some negative risks.
He said: “Weaker global demand could lead to lower prices for Malawi’s export commodities and an eventual pressure on the kwacha. Therefore, developments in the export market and their implications for the domestic economy will be carefully monitored.”
“The 2016/17 tobacco season was marred by low prices which could adversely affect the 2017/18 season’s supply of foreign exchange. The comfort is that demand for foreign exchange remained subdued even during the lean season and is expected to remain so during the rest of 2017 which implies that the current levels of foreign exchange can adequately accommodate such pressures.”