Malawi's central bank lowered its policy rate by a further 200 basis points to 16.0 percent, citing "recent disinflation, inflation outlook and the desire to consolidate gains made in stabilizing the economy."
The Reserve Bank of Malawi has now cut its key rate by 800 basis points this year and by 1,100 points since embarking on an easing cycle in November 2016.
After suffering from double digit inflation since 2012, Malawi's inflation rate has been falling since the start of this year, reflecting tight monetary policy, a good harvest, favorable base effects, and this year's stable exchange rate of around 725 to the U.S. dollar.
Inflation eased to a year-low of 7.7 percent in November from 23.5 percent in July 2016, with food inflation plunging to 4.7 percent in November from 29.2 percent in July last year, the bank said.
After two consecutive years of drought, which threatened the food security of almost half of Malawi's population, improved weather has led to a better maize harvest this year, with economic growth also improving.
The central bank forecast 2017 growth of around 5.0 to 6.0 percent, up from 2.7 percent in 2016, but stressed the need for the government to sustain macroeconomic stability and address underlying structural constraints to growth.
Malawi's gross official reserves rose to US$763.3 million as of Dec. 15, up from $581 million in the same 2016 period, enough to finance 3.7 months of imports.
"The MPC noted that the stable kwacha augurs well with the sufficiency of the reserves and the disinflation process," the central bank said.
