The Policy rate is a yardstick the Central Bank uses for lending to commercial banks and helps to signal and shape macroeconomic forecasts in a particular period.
Governor of the Central Bank, Dalitso Kabambe announced this at RBM’s offices in Blantyre after the Monetary Policy Committee (MPC) approved the rates. The following are some key issues highlighted:
• The MPC has also maintained the Liquidity Reserve Requirement (LRR) on local currency deposits at 5 percent and LRR on foreign currency deposits at 3.75 percent.
• Despite the skyrocketing maize prices on the market, the Governor has downplayed fears that this will affect the projected economic growth.
• Inflation rate is projected at 8.8 percent but RBM is committed to bring it down to 5.0 percent in the medium term.
RBM is also of the opinion that recoveries in agriculture as well stable macroeconomic conditions such as low inflation rate that has been maintained at single digit plus stability in the exchange rate have anchored the forecasted growth.
How has the country’s economic growth progressed from 2018?
The Central Bank says since 2018 the country has been consolidating economic gains evident with rising real Gross Domestic Product.
• In 2018 the RGDP was at 4 percent.
• In 2019 RGDP was pegged at 5 percent.
• This year as earlier alluded to RBM is optimistic that the country will attain growth around 5 to 6 percent.
During the interface meeting with scribes from various media houses in Blantyre, Kabambe disclosed that henceforth RBM will use a symmetrical system which uses a range for growth projections.
“This is a new thinking accepted by economists around the globe. When we make projections say the economy will grow with 5 percent we can over perform to 7 percent or underperform to 3 percent depending on how economic variables play out so in this new school of thought and in line with international best practice RBM has adopted a symmetrical band of 2.0 percentage points around the projected target point,” said Kabambe.
What are other economists saying on the announcement?
Kette Nyasulu, acting ceo, Ecama
“Maintenance of the policy rate at 13.5 percent in the face of recent rise in inflation rate indicates that the monetary policy is in a good place. This step will help to keep the economy strong amidst recent uncertainties both locally and internationally. Such relatively low rates are aimed at stimulating economic growth, as lower financing costs can encourage borrowing and investing. Besides, I would have to concur that the recent observations regarding the rising prices of maize is temporary and soon the inflation rate may start to lower on account of improved supply of maize during the forthcoming harvest season.
“In other words such lower rates mean cheaper loans. On the other hand consumers are also likely to earn less interest on their savings accounts and hence the need to diversify savings options,” commented Kettie Nyasulu, acting chief executive officer for Economics Association of Malawi (Ecama).
Also commenting on the development is John Robinson Kamanaga, ceo for Malawi Stock Exchange (MSE). He applauds RBM for ensuring stability in the economy.
“The maintenance of the policy rate is good for the capital market and the Malawi Stock Exchange in particular. The policy signals the direction of interest rates and therefore the maintenance of the rates signals the stability and marginal reduction of the rates in the money market and this gives a comparative advantage to the capital market investment,” said Kamanga.
Malawi is an agrarian based economy but lately there have been significant investments in energy, mining and other key sectors.