Malawi raises benchmark rate to stabilize Kwacha, tame inflation

Malawi’s central bank said on Tuesday it would raise its benchmark interest rate by 400 basis points to 25 percent as it seeks to stabilise the kwacha currency to contain inflation.

“Reflecting the decreasing foreign exchange reserves and the increasing inflationary expectations, the kwacha continued to depreciate faster than anticipated,” the Reserve Bank Of Malawi said in a statement on its website.

The southern Africa country’s economy had been in a tailspin earlier this year after former President Bingu wa Mutharika picked a fight with international donors, who withheld aid that traditionally accounted for about 40 percent of the national budget.

President Joyce Banda, who took office in April after Mutharika died of a heart attack, has restored aid flows and reversed policies that led to a foreign exchange shortage where items purchased abroad with hard cash, including petrol and pharmaceuticals, became scarce.

But the recovery has been slow.

The central bank said foreign exchange reserves fell to $142.7 million, or about 0.8 months of import cover, at the end of October.

Malawi’s year-on-year headline inflation quickened to 30.6 percent in October from 28.3 percent in September due to soaring food and fuel prices as well as a depreciation of the kwacha that took place under Banda.

The country also relies heavily on tobacco sales to generate hard currency.

Malawi Kwacha: Inflation soaring due to depreciation of the kwacha

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