RBM maintains Policy rate to recover economy

In a bid to recover the country’s economy in the wake of Covid-19 second wave, Reserve Bank of Malawi (RBM) Monetary Policy Committee (MPC) has maintained Policy Rate at 12 percent. Through a press statement, MPC Chairperson Dr. Wilson Banda said the decision has been arrived at to contain impending inflationary pressures to the country’s economy. Clarifying on the decision, Dr. Banda said the committee noted of reversed inflation which was noted during fourth quarter of 2020. According to Banda, the Committee made the decision to maintain the policy rate during its first meeting of year 2021 which was held on 25th and 26th January. “The annual average headline inflation, at 8.6 percent for 2020, was lower than the 9.4 percent recorded in 2019. The Committee also noted that the inflation outlook in the medium-term remained broadly unchanged from what was envisaged during the Fourth 2020 MPC. “Therefore, the Committee decided to maintain the Policy rate at 12.0 percent, the Liquidity Reserve Requirement (LRR) ratio on domestic and foreign deposits at 3.75 percent and the Lombard rate at 20 basis points above the Policy rate. This decision will allow the impact of the November 2020 Policy rate reduction to transmit and permeate through the economy. This position is also meant to support economic recovery”, said Dr. Banda. MPC has also predicted that Global Economy which was hardly hit in 2020 by Covid-19 pandemic will expand by 5.5 percent in 2021 from a contraction of 3.5 percent 2020. “The recovery is premised on limited impact of the COVID-19 pandemic as most countries get access to vaccination as well as continued policy support in some large economies. This notwithstanding, there are significant downside risks to the projection, including a prolonged second-wave of the COVID-19 pandemic”, said Dr. Banda MPC has also projected that in 2021 inter1 Oil Prices might increase, Domestic Economic Growth will remain uncertain, Trade Balance will continue to weaken and Inflation will remain unchanged. In November 2020, Policy rate dropped with 150 basis points from 13.5 percent.