Reserve Bank of Malawi maintains bank rate at 13.5 %

The Reserve Bank of Malawi (RBM) has  resolved to maintain the policy rate—also known as the bank rate—at 13.5  percent and and the Lombard Rate at 0.4 percent above the Policy Rate.

Addressing a news conference held at the RBM headquarters in Lilongwe,  RBM Governor Dalitso Kabambe said  central bank’s Monetary Policy Committee (MPC) made the decision after a two-day Macro-economic Conditions Review Meeting held on 29th and 30th October.

Kabambe, who also chairs the MPC, said the committee has also agreed to maintain the Liquidity Reserve Requirement—a fraction of depositors’ money commercial banks maintain with the central bank without earning interest—at 5 percentand the LRR on foreign currency deposits at 3.75 percent.

He said in arriving at this decision, the Committee observed that although rising maize prices may marginally push up headline inflation in the near term, this elevation is deemed temporary and does not pose a risk to the medium-term inflation objective of 5 percent by 2021.

The RBM Governor said the economy remains resilient.

“The economy has displayed notable resilience despite the adverse effects of Cyclone Idai and the weak performance of tobacco exports in 2019. Real Gross Domestic Product (GDP) continues to recover and is projected to grow by 5 percent in 2019,” he said.

Kabambe said they have reviewed the macro-economic conditions after noting that inflation is lowest in the past seven years.

The country’s annual rate of inflation has been falling steadily since June 2016, largely helped by declining food prices, a relatively stable kwacha and lower international fuel prices.

“Inflation has remained in single digit, and was recorded at 9.3 percent in the third quarter of 2019; the exchange rate remains remarkably firm, currently trading at around K740 per US dollar; lending rates continue to decline, with the base lending rate (now the reference rate) recorded at a historically low level of 12 percent,” said Kabambe.

Kabambe said the private sector credit continued to expand, having grown by an average of 19.1 percent in the third quarter of 2019 up from 15.1 percent in the preceding quarter and 9.9 percent in the corresponding quarter of 2018.

“The Committee therefore observed that the positive macroeconomic outlook envisaged during its first meeting of 2019 remains firm,”   he said.

Kabambe said  Malawi’s inflation as measured by the Consumer Price Index (CPI) will remain on single digit and projected to average 9.0 percent in 2019.

“Inflation increased in the third quarter of 2019 to 9.3 percent from 9.0 percent in the second quarter of 2019. The increase was on account of food inflation which rose to 14.2 percent from 13.5 percent in the second quarter of 2019, and 9.9 percent in the corresponding quarter of 2018. Food inflation has largely been driven by maize prices which rose to K227 per Kg in October 2019 from K130 per Kg in October 2018.

“Food prices pressure may marginally intensify during the lean period, but is expected to substantially decline at the onset of the next harvest season. Non-food inflation, on the other hand, has remained remarkably low as it declined further to an average of 5.4 percent in the third quarter of 2019 from 5.5 percent in the previous quarter, largely owing to stability in the exchange rate,” he said.

He said credit growth remains strong and money supply growth is not expansionary.

Kabambe ssaid the private sector credit has maintained a strong growth momentum, with the third quarter of 2019 registering a growth rate of 19.2 percent compared to 15.1 percent in the preceding quarter and 9.9 percent in the corresponding quarter of 2018.

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