Malawi economy to stabilize mid 2014 – Central Bank

Reserve Bank of Malawi (RBM) Governor Charles Chuka has said his bank, whose role is to balance economic factors, had put measures that would see the iling economy stabilise half-way next year.

Chuka told reporters in Lilongwe that the Malawi economy which has been destabilized by among other factors, the recent economic scandal, commonly referred to as the cash-gate is expected to stabilize in six months time.

“The Kwacha fell sharply against major currencies , donors pulled out creating funding gaps, we expect fuel price to continue going up as the Kwacha falls but we have put measures to ensure that the pain only last for six months when our export levels go up due to the tobacco selling season,” said Chuka.

Chuka said the bank had put in place monetary policies that would see the country manage inflation which is expected to go up from the projected 18.3 percent in December 2013 to 23.1 percent, import cover to be adjusted from the current 2.5 months to around 2 months within the lean period.

Chuka: Economy to recover

“This objective will be pursued through the use of a range of instruments such as Open Market Operations (OMO), bank rates and foreign exchange operations.

“The bank’s participation in the foreign exchange market f will be guided by the need to accumulate and maintain reserves at two months of import at the same time minimize large swings in the Kwacha,” Chuka said.

According to Policy Statement Number 1 the RBM has issued which aims at informing the general public about objectives, instruments, and framework for the conduct of monetary policy, monetary direction to June 2014 will remain tight to contain inflation and authorities will continue to use money targeting framework consistent with International Monetary Fund’s Extended Credit Facility.

“In order to make sure that monetary aggregates remain in line with economic activity, and thereby avoiding fueling inflationary pressures, increased Domestic Borrowing Requirements (DBR) usually calls for measures to reduce bank lending to the private sector,” reads the Monetary Policy Statement Number 1.

Commenting on the Monetary Policy Statement, Dr Naomi Ngwira Deputy Governor Responsible for Economics said the use of instruments of OMO and Automated Pricing System implies that the bank will not defend the economy to ensure that it stabilizes based on its stand against market forces.

“We are not going to defend our economy. Instead we will let it take its place based on market forces. We are using market controls such as interest rates to control inflation. We can make it expensive for commercial banks to borrow money   as one way of controlling demand,” Ngwira said.

She said the bank projects that by December 2013, official exchange reserves would be slightly above two months of import and rise to 3.5 months by end of June 2014.

As a result of this, the Malawi Kwacha is expected to remain broadly stable with bias towards some depreciation during lean period, a view Chuka concurred with.

The country has been subjected to an unexpected shock which has complicated the path to economic recovery. However, if the country adheres to the monetary policy, we should be able to stabilize within the six months and some donors may come back within the period. The future looks bright,” said Chuka.

President Joyce Banda recently reshuffled her cabinet and roped in Dr Maxwell Mkwezalamba as Finance  Minister, replacing Ken Lipenga in a bid to improve the country’s economy.

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