The Reserve Bank of Malawi (RBM) has again kept both its main lending rate and Liquidity Reserve Requirement unchanged to support the local currency and rein in on runaway inflation, the bank said in a statement posted on its website
“Based on regular economic and monetary analyses, the MPC decided to keep the Bank rate and the Liquidity Reserve Requirement (LRR) unchanged at 25.0 percent and 15.5 percent, respectively,” reads the latest minutes of the third bank’s Monetary Policy Committee.
The central bank last hiked the benchmark rate in December last year by 400 basis points from 21 percent to 25 percent.
The central bank said that it arrived at the decision to maintain the base lending rate and LRR after considering latest developments in the economy.
“The tight monetary policy stance adopted by the authorities since May 2012 has started yielding desired outcomes as pressure on the kwacha and inflation have abated,” reads the minutes in part.
Year-on-year headline inflation rate decelerated by 1.5 percentage points to settle at 36.5 percent in March backed by improved availability of maize.
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.
The central bank also said that that during April 2013, signs of Kwacha stabilization were evidenced by the appreciation of the local currency against the United State dollar mainly on account of 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 dollar, the Bank said, will serve to dampen inflationary pressures, including fuel prices, provided that the stability is sustained over the next few months.
The southern African country scrapped its currency peg to the dollar last year, triggering a devaluation of around 50 percent in the Malawian kwacha in a bid to unblock frozen aid and halt a downward spiral in the economy.
The currency devaluation triggered a wave of price increases, including the pump price of petrol and diesel, and has pushed headline inflation since then until in March when it eased from 37.9 percent in February to 36.5 percent.