MALAWI’S ECONOMY IN 2013

The Monetary Policy Committee –MPC that met 8 times between June 2012-July 2013 had raised the bank rate to 25 per cent in December 2012 has maintained it at 25 per cent from January to December 2013. The Liquidity rate remained unchanged at 15.5 per cent during the entire fiscal year. Open market operations were used extensively to contain expansion in monetary aggregates but the subsequent need to raise the Bank Rate was overtaken by an increase in interest rates as banks tried to defend their deposit positions. Thus, credit conditions tightened without an adjustment in the Bank Rate.

ON INFLATION;
Malawi’s inflation targets are set to move over time towards the SADC target of 5 per cent. Thus, the target for end-December, 2013 was initially 14 per cent and 7 per cent for end-December 2014. However, because of the expected increase in food prices and the recent postponement of donor disbursements, the end-December 2013 inflation target has been revised to 23.1 per cent and to 15% by end-June, 2014.
Notable progress has been achieved since the economic reforms commenced in the first half of 2012. Inflation shot up steadily from 12.4% in April 2012 to a peak of 37.9% in February 2013 due to the implementation of foreign exchange market liberalization and the Automatic Pricing Mechanism for fuel, as well as high prices of maize. A combination of improved availability of food after the harvest and consistent implementation of a tight monetary policy stance has resulted in inflation decelerating from 37.9% in February 2013 to 21.7% in September, 2013.

However, others have projected that inflation for December 2013 will average 31.2 % compared to Reserve bank’s 23.1% forecast.

The Bank projects that by December 2013 official foreign exchange reserves coverage will be slightly above 2.0 months of imports and rise to 3.5 months by end of June 2014. As a result, the Malawi kwacha is expected to remain broadly stable with a bias towards some depreciation during the lean period.