Malawi's central bank left its policy rate steady at 13.50 percent and confirmed it expects inflation to average 9.0 percent this year, pushed up by higher maize prices, but this is considered temporary and not a risk to achieving the inflation objective of 5 percent by 2021.
The Reserve Bank of Malawi (RBM), which slashed its policy rate in half from November 2016 to May this year on falling inflation, also confirmed its forecast from July for economic growth of 5 percent this year, up from 4 percent in 2018, as the economy "displayed notable resilience despite the adverse effects of Cyclone Idai and the weak performance of tobacco products in 2019.
RBM has cut its policy rate by 13.50 percentage points since November 2016, with the most recent cut in May this year, as inflation declined from almost 25 percent in December 2015 after two years of drought boosted food prices. Since then, better weather has led to improved food production and helped stabilize the kwacha, which fell sharply from 2021 to March 2016.
Today the kwacha trades around 731 to the U.S. dollar, largely unchanged this year.
Malawi's inflation rate eased to 9.2 percent in September from 9.5 percent in August for a rise to 9.3 percent in the third quarter from 9.0 percent in the second quarter due to food inflation, which rose to 14.2 percent from 13.5 percent in the second quarter.
Non-food inflation, however, fell to an average of 5.4 percent in the third quarter from 5.5 percent in the second, largely due to a stable exchange rate, RBM said.
The forecast for a gradual decline in inflation toward 5 percent is contingent on favorable weather as well as prudent fiscal management, the central bank said, adding higher food prices may slightly push up inflation in the fourth quarter so it is marginally higher than projected.
While this is considered temporary, the central bank said a gradual disinflation process is still necessary due to second round effects of higher inflation, hence the decision to maintain the rate.
