Financial and economic advisory agency, Alliance Capital Limited says the Reserve Bank of Malawi (RBM) needs to take all-inclusive approach to sustain the downward trajectory of inflation to medium inflation objective of 5 percent.
Recently, RBM’s Monetory Policy Committee (MPC) chaired by RBM governor, Dr. Dalitso Kabambe said the central bank is determined to maintain low and stable inflation throughout 2019.
“Due to expected higher agricultural output, adequate foreign exchange reserves and favourable international crude oil price, baseline inflation projections model have shifted downwards. Inflation is now projected to average 8.5% in 2019, from an earlier projection of 10.1%,” Kabambe said.
However, in its weekly financial statement, Alliance Capital observed that for effective implementation of the policies anchoring inflation, RBM has to be holistic enough to take on board the social context in which it operates.
“The first socio-economic issue that must be addressed is Malawi’s appetite for foreign goods. To a large extent, Malawi’s demand for imported products is inelastic,” reads part of the statement.
According to the statement, the first implication of over dependence on imported goods is that it exerts pressure on the exchange rate.
“If the exchange rate depreciates, this fuels cost push on inflation. When this occurs, the only hope to offset the depreciation and inflation is offered by the export of products from the agriculture sector, however, reliance on these has proven to be problematic as the agricultural sector is seasonal and volatile.”
Also highlighted is the issue around the financial inclusion in Malawi which remains weak as most Malawians continue to face severe constraints in accessing financial services including savings, credit and insurance.
It is estimated that around 55 percent of the population does not have access to even the most basic of financial services and among those with some financial access only 26 percent are formally banked.
“Over the last few years, The Reserve Bank of Malawi has commendably made strides in its efforts to deepen financial inclusion. Therefore, it needs not relent on these efforts because of the deep implication it has on monetary policy and the consequential effect on inflation,” the statement stressed.
US ambassador to Malawi Virginia Palmer told YFM in an earlier interview that for real economic growth and stable inflation, Policymakers including the government need to respect MPC guidelines and reduce government expenditure to avoid perpetual ineffectiveness.