LILONGWE-(MaraviPost)-The Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) on Wednesday says it has maintained the policy rate—the rate at which commercial banks borrow from the central bank—at 16 percent to counter inflationary risks.

The policy rate has been at 16 percent since it was last revised downwards by two percentage points in December 2017 largely due to decreasing inflation rate, which is currently at 8.9 percent as of May 2018, according to the National Statistical Office (NSO).

RBM Governor Dalisto Kabambe told the news conference in the capital Lilongwe after meeting MPC that the bank is to review recent global and domestic economic developments and decided to maintain the policy rate at the current level.

Kabambe said the committee comprising official from RBM, Treasury, private sector and the academia, observed that despite the reduction in inflation in May 2018, risks to inflation still persist.

“The economy is on a sound footing and you can even be witnesses. Food inflation is low and non-food inflation is also in low levels as well.

“Prices of maize and other essential commodities such as fuel have been stable for quite some time which shows that we are heading in the right direction. If things continue going the way they are, the economy will be very stable up to next year,” he said.

Kabambe said this is aimed at managing risks to the inflation outlook and support disinflation towards the medium-term objective of five percent.

He added: “The committee observed that inflation during the first half of the 2018 remained somewhat elevated due to rebasing effects of the Consumer Price Index [CPI], electricity tariff adjustment in May 2018, a jump in maize prices in January and February 2018 on account of speculation and fiscal pressures largely due to the Malawi Revenue Authority [MRA] not meeting set targets.”

But Malawi Economic Justice Network (Mejn) executive director Dalitso told The Nation Newspaper that it could have been good if the policy rate was reduced so that commercial banks also bring down interest rate further.

Commercial banks are pegging their interest rates between 23 percent and 25 percent, and the rates even go higher depending on the risk profile of the borrower.

“The news is encouraging, but there is need to exercise fiscal discipline and reduce domestic borrowing. This [domestic borrowing] is a huge issue that needs to be checked because it is crowding out the private sector.

“We want to see tangible results which could spur the growth of the private sector because currently access to finance remains a challenge,” said Kubalasa.

The MPC maintained the Liquidity Reserve Requirement (LRR)—a percent of bank’s deposit kept at the central bank with no interest—at 7.5 percent and the Lombard rate, the rate at which stressed banks borrow from RBM at 200 basis points above the policy rate due to the favourable economic climate.