LILONGWE-(MaraviPost)- Economic experts and general public have welcomed the Reserve Bank of Malawi’s (RBM)’s decision to reduce bank rates from 24 percent to 22% and they described the move as a recipe for attracting good investments in the country.
The RBM through its Monitory Policy Committee (MPC), on Friday revised downwards the rates at which commercial banks were borrowing from the central bank, following the meeting the committee had to review the recent global and domestic economic developments.
In a statement released and made available to The Maravi Post, the central bank’s MPC decision looked into the disinflation process in the recent past and inflation outlook, hence reduced the Policy Rate (PR) by 2 percentage points to 22 %, and maintain Liquidity Reserve Requirement (LRR) at 7.5%.
According to RBM Global economic growth, estimates at 3.1 % in 2016, is projected to reach 3.4 % in 2017 saying the pickup in global activity, is driven by developments in emerging and developing economies.
The committee observed that the domestic front, economic growth is projected to rebound to between 4 and 5 percent in 2017 from 2.7 percent in 2016, on the back of favorable weather conditions, and stable macroeconomic environments.
The MPC further added that inflation has been declining since August 2016. Headline inflation fell to 16.1 % in February 2017 from 37.9 % in February 2013 and compared with 23.4 % in February 2016.
The sustained deceleration in non-food inflation from a peak of 42.8 % in March 2013 to 14.6 percent in February 2017, reflected a consistent tight monetary policy stance.
Concurrently, inflation developments benefited from the drop in food inflation from 38.2% in February 2013 to 17.5 % in February 2017, driven by timely response to the recent humanitarian crisis and the improved outlook for food supply in 2017.
Given the sharp drop in inflation, RBM projections have now been adjusted downwards from 16.1 % to 14.2 % by June 2017, reflecting seasonal improvement in food supply, stability of the exchange rate, and low international oil prices.
The outlook for inflation in the second half of the year will depend on fiscal out turn for 2016/17 and developments in the foreign exchange market.
The Reserve Bank of Malawi (the Bank), has continued to implement a tight monetary policy stance, resulting in money supply growth slowing down from 30 percent in June 2016 to 15 percent in December 2016. This kept monetary expansion in line with nominal GDP growth in 2016 of about 19 %, an indication that inflationary pressures are under control.
The MPC however, recognizes that continued economic recovery over the medium- to long-term horizon, depends on sustained macroeconomic stability and addressing underlying structural constraints.
“Net government domestic borrowing as at end December 2016 amounted to K565.7 billion (13.3 percent of GDP), compared to K448.5 billion (12.8 percent of GDP) recorded during the similar month last fiscal year. Liquidity conditions in the banking system remained tight, as evidenced by the interbank rate being kept close to the Policy Rate.
“The Bank continued to withdraw liquidity injected from government operations. All-type Treasury bill average yield settled at 25.0 percent as at end-February 2017, following convergence of yields across tenure. Official foreign exchange reserves in February 2017 stood at US$593.01 million, or US$44.11 million above the same month last year. The Bank maintained foreign exchange reserves around 3 months of imports over the period,” reads the central bank’s MPC statement signed by Governor Charles Chuka who is also its chairperson.
In reacting to the rate cut, Gilbert Kachamba, Head of Economics department at Catholic University, said the development was good for encouraging investments and would ultimately trigger economic growth.
Kachamba therefore, expects the commercial banks to respond to the changes accordingly that the general public should also benefit from the cut.
Economic fundamentals seemingly pointing at the right direction with the recent stabilization of the local currency, the Malawi Kwacha and inflation rates decrease.