By CentralBankNews.info
Malawi’s central bank maintained its policy rate at 25 percent but signaled it may change the rate in the near future, saying its monetary policy committee “made a deliberate decision to review the policy rate at the next meeting” in order to balance the impact of the ongoing foreign exchange operations and liquidity, and the anticipated fiscal risks.
The Reserve Bank of Malawi (RBM), which has held its rate steady since December 2012, said measures implemented last year had impacted positively on the inflation outlook and enabled the build up of reserves.
Malawi’s inflation rate eased to 24 percent in March from 24.6 percent in February and 25.9 percent in January due to a deceleration in both food and non-food prices, the RBM said, adding that inflation is expected to continue to trend downwards and reach about 16 percent in December.
Malawi’s economy expanded by 6.10 percent in 2013 and the central bank estimated growth at the same 6.1 percent rate this year, with all sectors forecast to grow except for the mining sector.
Malawi’s central bank has been building up its foreign reserves during the tobacco season to provide it with a buffer against external shocks and allow it to intervene in the foreign exchange market to smooth out volatility in the exchange rate from a highly seasonal pattern of foreign exchange inflows.
Foreign exchange reserves for the banking system as a whole amounted to US$ 754 million in March, or 3.9 months of imports, up from 3.4 months end-December.
Malawi’s kwacha currency eased 9.4 percent against the U.S. dollar in 2013 but has firmed this year, trading at 385.7 on Friday, up 10.2 percent since the end of 2013.
The International Monetary Fund said last month that the RBM’s purchase of foreign exchange was boosting liquidity, complicating the disinflation process and recommended that “the RBM tighten monetary policy more aggressively.”
The bank said money market liquidity remained high, leading to a reduction in the interbank rate to 8.4 percent in April from 25.2 percent in December, and this calls for an “intensification of monetary operations which could lead to a reversal of both the Treasury bill yields and the interbank rates.”
Net domestic borrowing fell to K7 billion in the first quarter, but the bank expects this to reserve by the end of June due to uncertainty in donor funding and likely financing pressures in connection with elections.
“Based on the highlighted pressures, the Committee observed that risks to inflation remain,” the central bank said.
