RBM’s Monetary Policy Committee maintains policy rate at 12.0%

At its 4th meeting of 2021 held on November 2-3, the Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) maintained the policy rate at 12.0%.

The Liquidity Reserve Requirement (LRR) ratio on domestic and foreign deposits is at 3.75% while the Lombard rate is at 20 basis points above the policy rate.

In a statement from MPC chairperson, Dr. Wilson T. Banda says the decision was arrived at after considering the need to continue supporting economic recovery from the impact of the CoVID-19 pandemic, whilst monitoring and managing risks to inflation.

Governor Dr Wilson Banda

On inflation rate, MPC says it averaged 8.7% in 2021Q3 against a projection of 8.8% during the third 2021 MPC meeting, and was lower than 9.1 percent recorded in 2021Q2.

“The decrease is attributed to moderation of food inflation rate as non- food inflation rate increased marginally. Specifically, food inflation rate averaged 10.3% in 2021Q3 compared to 11.1% in 2021Q2.

“On the other hand, non-food inflation rate averaged 7.2% in 2021Q3, from 7.1% in the previous quarter. Headline inflation rate is now projected to average 9.1% in 2021, representing an upward revision of 0.3% points from the 3rd 2021 MPC.

“The 2022 inflation has also been revised upwards from 8.2% to 8.9%. The revisions reflect the impact of the recent increase in domestic fuel pump prices; a higher-than-anticipated rise in maize prices in the fourth quarter of 2021; and persistent disruptions to global supply chains.

On exchange rate, MPC says following market dynamics, the kwacha lost 1.26% against the US dollar and traded at K822.1655 per US dollar at the end of the third quarter of 2021, compared to a depreciation rate of 2.67% recorded in the previous quarter.

“However, the local currency appreciated by 1.88% against the British Pound; 0.57% against the euro; and 4.11% against the South African Rand and traded at K1170.4731 per pound, K1026.1367 per euro and K58.8950 per rand during the same period, respectively.

On global economic outlook, RBM says the International Monetary Fund revised downwards the 2021 global real economic growth rate projection, albeit marginally, from 6.0% projected in the July 2021 update to 5.9%.

The MPC quotes IMF’s report that says the “slower-than-initially-projected growth rate is a consequence of less optimism in the growth prospects for the advanced economies, partly attributed to supply chain disruptions”.

“In contrast, real economic growth rate for the emerging markets and developing economies group has been revised upwards, owing to improved assessments for some commodity exporting countries, which could outweigh the adverse effects of the CoVID-19 pandemic.

“The Sub-Saharan African region’s real economic growth rate has been revised upwards to 3.7% in 2021 from the initial forecast of 3.4%.”

The report also says the 2022 global real economic growth forecast has been maintained at 4.9%, “notwithstanding, the balance of risks for global growth is tilted to the downside, on account of potential resurgence of other variants of the CoVID-19 pandemic before widespread vaccination is achieved”.

On international oil prices, brent crude oil prices rose to an average of US$73.0 per barrel in 2021Q3, from US$68.6 per barrel in 2021Q2 — the increase being attributed to, among others, growing demand for the commodity following economic recovery and commencement of winter in the northern hemisphere.

As well as uncertainties around the outcome of the OPEC-plus meetings and the global energy crunch, as China continues to grapple with energy supplies.

“Brent crude oil prices are anticipated to remain around the current levels for the remainder of 2021, with the 2021Q4 average projected at US$71 per barrel.

“In 2022, Brent crude oil prices are expected to decline to an annual average of US$66 per barrel, on anticipation that growth in production from OPEC+, U.S. tight oil, and other non-OPEC countries will outpace consumption.”

MPC’s statement adds that the domestic economy is projected to grow by 3.8% in 2021 compared to a growth of 0.9% in 2020.

“The recovery is premised on the rebound of consumer and business confidence, as CoVID-19 cases declined amidst relaxation of containment measures. This notwithstanding, the third wave which hit the country between June and September 2021 may adversely affect the projected outcome.”

The merchandise trade improved in the third quarter of 2021 as the trade deficit narrowed to US$484.0 million from a deficit of US$490.7 million in the preceding quarter.

“The outcome followed a growth of 23.2% in exports to US$338.4 million, which was stronger than an increase in imports of 7.4% to US$822.4 million. The drivers of the growth in exports recorded in 2021Q3 were mainly a result of a seasonal increase in tobacco and sugar exports.”

The next MPC meeting is scheduled for January 27-28, 2022.

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