It is the first change in rates by the Reserve Bank of Malawi since November 2014 when it raised the rate to 25.0 percent from 22.50 percent.
Malawi's inflation rate has been stuck above 20 percent since mid-2012 and in September it accelerated to a 2015-high of 24.1 percent in September, reflecting continued depreciation of the kwacha's exchange rate and second-round effects from increases in food prices.
"Despite a relatively healthy foreign reserves position compared to last year and continued inflows from the tobacco auction floor, the kwacha depreciated sharply during the months of July and August due to excess demand, speculative behaviour by market agents, and an appreciating dollar," the central bank said.
Malawi's economy has been hit by weather-related shocks, the International Monetary Fund said in September, adding that economic growth is projected to fall to 3.0 percent this year from 5.7 percent last year due to a steep decline in the maize harvest along with weak investment and consumption.
The kwacha was trading at 555.4 to the U.S. dollar today, down 16 percent since the beginning of 2015 and down 23 percent since the start of 2014.
In September Malawi's gross official reserves dropped to US$664.4 million from $737.1 million in July, the bank said, adding that money supply growth accelerated to 30.7 percent in the first nine moths of this year compared with growth of 13.8 percent in June, implying rising demand pressure.
The Reserve Bank of Malawi issued the following statement:
"The Monetary Policy Committee (MPC) met on 4th November 2015 and examined
the external and domestic economic developments and decided to raise the Policy
rate to 27 percent and maintain the Liquidity Reserve Requirement (LRR) at 7.5
percent. The meeting took place against a backdrop of persistently high inflation,
depreciating exchange rate, as well as uncertainties on food prices and wage
demands.
On the global scene, the IMF has revised downwards 2015 GDP growth to 3.1 percent, from an earlier projection of 3.3 percent due to a weak recovery in advanced economies and a slowdown in emerging and developing economies. The developing economies are being affected by low commodity prices, weak demand in major trading partners’ economies and the appreciating dollar.
On the domestic front, Government revised 2015 real GDP growth to 3.0 percent from an earlier projection of 5.4 percent. The downward revision was necessitated mainly by a contraction in agriculture due to late on-set of rains, floods and early cessation of the rains.
Annual growth in money supply during the first 9 months of 2015 averaged 18.2 percent, which was below the estimated nominal GDP growth rate for 2015 of 21.1 percent. However, money supply growth accelerated to 30.7 percent from 13.8 percent in June 2015, implying rising demand pressures.
Inflationary pressures continued in September 2015 as headline inflation reached 24.1 percent, from 23.0 percent in the previous month. The pressures rose mainly from non-food inflation, which picked up by 1.4 percentage points reflecting continued depreciation of the kwacha and second round effects from increases in food prices. Food inflation also increased, albeit marginally by 0.5 percentage points due to the after effects of the decline in agricultural production for the 2014/15 season.
The banking system liquidity increased from K4.7 billion in June to K17.4 billion in
October 2015. Subsequently, the interbank rate which was at 25.3 percent in June
dropped to 11.2 percent in October 2015. Average Treasury bill yields declined over
the same period due to increased liquidity in the market."
www.CentralBankNews.info
On the global scene, the IMF has revised downwards 2015 GDP growth to 3.1 percent, from an earlier projection of 3.3 percent due to a weak recovery in advanced economies and a slowdown in emerging and developing economies. The developing economies are being affected by low commodity prices, weak demand in major trading partners’ economies and the appreciating dollar.
On the domestic front, Government revised 2015 real GDP growth to 3.0 percent from an earlier projection of 5.4 percent. The downward revision was necessitated mainly by a contraction in agriculture due to late on-set of rains, floods and early cessation of the rains.
Annual growth in money supply during the first 9 months of 2015 averaged 18.2 percent, which was below the estimated nominal GDP growth rate for 2015 of 21.1 percent. However, money supply growth accelerated to 30.7 percent from 13.8 percent in June 2015, implying rising demand pressures.
Inflationary pressures continued in September 2015 as headline inflation reached 24.1 percent, from 23.0 percent in the previous month. The pressures rose mainly from non-food inflation, which picked up by 1.4 percentage points reflecting continued depreciation of the kwacha and second round effects from increases in food prices. Food inflation also increased, albeit marginally by 0.5 percentage points due to the after effects of the decline in agricultural production for the 2014/15 season.
Despite a relatively healthy foreign reserves position compared to last year and
continued inflows from the tobacco auction floor, the kwacha depreciated sharply
during the months of July and August due to excess demand, speculative behaviour
by market agents, and an appreciating dollar. In the event, gross official reserves
declined from US$737.1 million in July to US$664.4 million in September 2015
following interventions in the market to smoothen exchange rate movements.
www.CentralBankNews.info
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