Malawi’s central bank held its benchmark bank rate steady at 25.0 percent, saying it would “be premature to loosen monetary policy at this early stage” despite signs of lower inflationary pressure and a stabilization of the kwacha currency.
The Reserve Bank of Malawi (RBM), which raised rates by 1200 basis points in 2012 to combat inflation, said “the deceleration in month-on-month inflation provides a clear sign that inflation is being brought under control and that the prospects for lower annual inflation rates have strengthened.”
Malawi’s headline inflation rate eased to 36.4 percent in March, down from 37.9 percent the prior month. But on a monthly basis, inflation only rose by 0.2 percent in March in contrast to the 6.6 percent monthly rise in February.
The RBM also said there were signs of a stabilization of the kwacha based on a rise against the U.S. dollar from curtailed demand for foreign exchange as a result of tight monetary conditions and proceeds from tobacco auction sales.
“The strengthening of the kwacha against the US dollar will serve to dampen inflationary pressures, including fuel prices, provided that the stability is sustained over the next few months,” the bank added.
Although liquidity conditions remain tight, the RBM said growth in bank credit remains strong, with lending to the private sector up by an annual 28 percent in March.
“This credit expansion needs to be contained in order to ensure that inflationary pressures are reined in,” the central bank warned.
But the central bank welcomed lower Treasury bill yields and said it looked forward to a further decline as the government continues to rein in domestic borrowing.
The Malawi government is projecting economic growth of 5.7 percent this year while the International Monetary Fund forecasts 5.5 percent.
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