Tag Archives: Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM)

Business, Malawi

Malawi Central bank raises policy rate to 18%: Tough times for borrowers

Lloyd M’bwana
Reserve Bank of Malawi

LILONGWE-(MaraviPost)-The country’s central bank, Reserve Bank of Malawi (RBM) through Monetary Policy Committee (MPC) has raised the Policy Rate from 14 percent to 18 percent amid economic crisis.

This means citizens tend to borrow money from commercial banks and other financial institutions must brace for tough times ahead.

In press statement on Thursday, October 27, 2022 made available to The Maravi Post, MPC says the bank has kept the Lombard rate at 20 basis points above the Policy rate and the Liquidity Reserve Requirement (LRR) ratio on both domestic and foreign currency denominated deposits.

According to MPC, the decision was deemed necessary to restore price stability, which is essential for reviving and sustaining high economic growth.

“Monetary Policy Committee Raises the Policy Rate to 18.0 Percent The Monetary Policy Committee (MPC), at its meeting held on 25th and 26th October 2022, decided to raise the Policy rate by 400 basis points to 18.0 percent.

“Meanwhile, the Committee decided to maintain the Lombard rate at 20 basis points above the Policy rate and the Liquidity Reserve Requirement (LRR) ratio on both domestic and foreign currency denominated deposits at 3.75 percent,” reads part of the MPC statement.

According to the committee, the global economic outlook remains gloomy, characterised by weak growth and persistently high inflation due to lingering effects of the COVID-19 pandemic and the Russia-Ukraine war.

Below is part of MPC statement:

In the October 2022 World Economic Outlook (WEO), the IMF projects a slowdown in real GDP growth from 6.0 percent in 2021 to 3.2 percent in 2022 and further down to 2.7 percent in 2023. The 2023
growth forecast represents a downward revision from 2.9 percent reported in the July 2022 WEO Update.

Regarding forecasts for the country groupings vis-à-vis the July 2022 projections, the October 2022 WEO has revised downwards the growth for advanced economies by 0.1 percentage points to 2.4 percent in 2022, and 0.3 percentage points to 1.1 percent in 2023.

The emerging and developing economies are projected to register a combined real economic growth of 3.7 percent in both 2022 and 2023, representing an upward revision of 0.1 percentage points for the former, but a reduction of 0.2 percentage points for the latter.

In the Sub-Saharan Africa (SSA) region, real economic growth is projected at 3.6 percent in 2022 and 3.7 percent in 2023, downward revisions of 0.2 percentage points and 0.3 percentage points, respectively.

The weaker growth outlook reflectsthe impact of a slowdown in the trading partners’ growth, tighter financial and monetary conditions as well as negative shifts in terms of trade.

Developments in Global Commodity Prices
International commodity prices for 2022Q3 slightly moderated from the ruling prices of 2022Q2, but remained more elevated than the prevailing prices during the similar period of 2021. For instance, Brent crude oil price dropped to an average of US$99.23 per barrel in 2022Q3, from US$112.74 per barrel in the preceding quarter and compared to an average of US$73.0 per barrel for 2021Q3.

Indications are that Brent crude oil prices could ease to US$85.52 per barrel in 2023, following a backdrop of recession-induced weak demand in some countries.

In the market for fertilisers, the average price of urea declined to US$627.43 per metric tonne in 2022Q3 from US$774.2 per metric tonne in 2022Q2, while that of Di-ammonium Phosphate (DAP) dropped to US$761.8 per metric tonne from US$860.1 per metric tonne during the same period.

The decrease was on account of sluggish demand following the closure of spring planting and fertilizer application seasons in most countries.

However, at the 2022Q3 level, both urea and DAP prices were substantially higher than their respective 2021Q3 prices of US$435.71 per metric tonne and US$620.0 per metric tonne. Generally, the current prices of most fertilizers remain considerably higher than those of 2021 due to sustained supply-chain disruptions which were caused by the COVIDinduced imbalances, and exacerbated by the Russia-Ukraine war.

Domestic Economic Outlook
Domestic real economic activity was estimated to grow by 1.7 percent in 2022,from 4.2 percent in 2021, before picking up to 2.6 percent in 2023.

The slowdown is on account of a number of factors including unfavourable rainfall pattern during the 2021/22 season which affected agricultural production, intermittent electricity power supply, and the impact of the Russia-Ukraine manifesting through high commodity prices.

Meanwhile, the protracted power supply disruptions and fuel shortages, in addition to the prevailing high inflation which is constraining consumer demand, may weigh on the growth prospects.

Developments in Merchandise Trade
Merchandise trade is estimated to have yielded a deficit of US$417.9 million (K434.2 billion) in 2022Q3, from a deficit of US$252.2 million (K216.7 billion) recorded in 2022Q2 and a deficit of US$409.4 million (K337.0 billion) for 2021Q3.

The deteriorating trade balance was explained by a larger growth in imports of US$382.8 million to US$803.2 million (K832.3 billion) than the increase in exports of US$217.1 million to US$385.3 million (K398.1 billion) during 2022Q3.

The rise in exports was driven by tobacco, tea and coffee, and pulses and oil seeds, while the growth in imports was driven by fertilisers as the economy heads into the growing season.

Exchange Rate Developments
Foreign exchange supply-demand imbalances persisted in the domestic market, resulting in further weakening of the kwacha. Specifically, the kwacha US dollar TT exchange rate lost only 0.04 percent (43 tambala) and closed 2022Q3 at MWK1,033.7944 per US dollar.

However, kwacha gains were noted against the rest of Malawi’s major trading partners’ currencies (that is, the British pound, the euro, and the South African rand) during the same period. This followed the US
dollar gains against these currencies owing to recent decisions by the Federal Reserve Board to tighten the stance of monetary policy.

Meanwhile, the Bureaux US dollar cash exchange rate lost 7.69 percent (MWK96.96) during 2022Q3 and
closed the quarter at MWK1,357.8750 per US dollar.

Domestic Inflation Projections
Inflation pressures continue to heighten, as evidenced by the upsurge in the average headline inflation to 25.3 percent in 2022Q3 from 19.4 percent in 2022Q2. Looking ahead, the delayed pass-through of past increases in food and energy prices from global commodity markets to domestic consumer prices could
sustain high inflation for some time.

Consequently, the 2022 annual average inflation is projected to rise to 21.5 percent from the outturn of 9.3 percent registered in 2021. In 2023, headline inflation is projected to rise further to an
average of 21.8 percent.

MPC Raises the Policy Rate to 18.0 Percent
The MPC decided to raise the Policy rate by 400 basis points to 18.0 percent. Further, the Committee maintained the Lombard rate at 20 basis points above the Policy rate and the LRR ratio on both domestic and foreign currency denominated deposits at 3.75 percent.

In taking this decision, the Committee noted that high inflation could frustrate the country’s economic recovery process while also eroding purchasing power of households. In the absence of measures to contain inflation, rising prices will continue to diminish the welfare of households.

The MPC therefore considered expeditious tightening of monetary policy stance as further delays could risk entrenching inflation expectations.

Business, Top News

Malawi central Bank cuts policy rate to 14.5%

Maravi Post Reporter

By Grace Dzuwa

BLANTRYRE-(MaraviPost)-The Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) Wednesday reduced the indicative cost of money, technically known as the policy rate, by 1.5 percentage points from 16 to 14.5 percent.

This is the first time in 13 months for MPC to trim the policy rate which was last revised downwards in December 2017.

This must be great news to borrowers, companies and individuals—who have been struggling in recent times to settle their loans with commercial banks—as they will now pay less money in form of interest on their loan obligations.

Traditionally, after a policy rate cut, MPC was leaving it to commercial banks to decide the level at which they could peg their base lending rates.

MPC Chairperson, Dalitso Kabambe told the news conference in Blantyre that base lending rates of all banks will now be pegged to the Lombard Rate, which was Wednesday reduced to 14.9 percent.

The development means commercial banks will no longer compete on base lending rate levels but on how risky they perceive customers.

Analysts believe that, following the decision, commercial banks should price their loans around 19 to just above 20 percent depending on customers’ risk profile.

MPC has also effected a reduction in the Liquidity Reserve Requirement (LRR) by 250 basis points from 7.5 percent to 5.0 percent on local currency deposits; and by 375 basis points, from 7.5 percent to 3.75 percent, on foreign currency deposits.

The LRR reduction, which saw over MK8 billion freed into the market Wednesday alone, means commercial banks would now have more money to lend to the companies and individuals.

Kabambe said the decisions have been partly influenced by registered improvements in key macroeconomic fundamentals and real private sector credit growth over the past four months.

Kabambe said the central bank anticipates the MPC’s decisions to spur economic growth in 2019 and beyond.

“One can argue that this is not sufficient but we are making positive strides. We are making the right progress and this is more sustainable,”he said.

He said the slash in policy rate would give a relief to businesses which would also bring about a positive impact on the common man.

Reacting, Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer, Chancellor Kaferapanjira, said the private sector was over the moon over the developments.

He applauded RBM for not only reducing the policy rate but also slicing the Lombard rate and LRR.

“We expect commercial banks to respond immediately to these measures in order to benefit the real sector,” Kaferapanjira said as quoted in the Daily Times.

Economics Association of Malawi President, Chikumbutso Kalilombe told also the paper that  the move would spur economic growth from investments in real sector, as among others, and allow entrepreneurs and investors to venture into business with minimal macroeconomic risk considerations.

Kalilombe added that the country is anticipating that the situation would be sustained if its impact is to be felt.

“We cannot achieve the desired outcome at once as we have to move gradually as such ensures sustainability. Further reductions will therefore only come if macroeconomic variables stay on course,” Kalilombe said.

 

Business, Top News

Malawi central bank maintains fiscal policy rate at 16%

Maravi Post Reporter

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.