RESERVE BANK OF MALAWI
STATEMENT OF THE MONETARY POLICY COMMITTEE FOURTH MEETING OF 2024
4TH NOVEMBER 2024
Monetary Policy Committee Maintains the Policy Rate and Raises the LRR Ratio on Domestic Currency Deposits to 10.0 Percent.
The Monetary Policy Committee (MPC) met on 4th November 2024 to review recent economic developments and decide on the monetary policy stance. Based on the economic and monetary outcomes and outlook, the MPC decided to maintain the Policy rate at 26.0 percent. The Committee also decided to maintain the Lombard rate at 20 basis points above the policy rate and the Liquidity Reserve Requirement (LRR) ratio at 3.75 percent for foreign currency deposits. However, the Committee resolved to raise the LRR ratio for domestic currency deposits by 125 basis points to 10.0 percent. In making this decision, the Committee noted that although inflation has remained elevated, there are strong prospects of slowing down from the fourth quarter of 2024, on account of favourable base effects. The Committee also noted that money supply continues to grow sharply, posing risks to the inflation outlook. In this regard, the MPC believes that tightening through LRR ratio for domestic deposits will slow down the money supply growth pressures and enhance the envisaged inflation deceleration process in the short to medium term.
Global Economy to Grow by 3.2 Percent in 2024 and 2025
The MPC noted that global growth is projected at 3.2 percent for both 2024 and 2025, constrained by tight monetary policy, fiscal support withdrawal and geopolitical tensions. Risks remain skewed to the downside due to potential market volatility and international conflicts, which could raise commodity prices. Advanced economies are expected to grow at 1.8 percent in 2024 and 2025, driven by sustained demand and easing energy costs. Growth in emerging and developing economies is projected to hold at 4.2 percent, with Sub-Saharan Africa’s growth anticipated at 3.6 percent in 2024 and 4.2 percent in 2025, supported by improved supply chains and fewer weather disruptions.
Developments in International Commodity Prices
The MPC noted that crude oil prices averaged US$80.15 per barrel in the third quarter of 2024, a decline from US$84.90 per barrel for the preceding quarter. However, potential price increases could arise if OPEC+ continues production cuts, reducing global inventories. Urea fertilizer prices rose to US$340.83 per metric tonne compared to US$313.68 per metric tonne in the preceding quarter. This was influenced by China’s export restrictions and Middle East tensions, though still lower than US$366.75 in 2023Q3. Prices are projected to increase slightly to US$342.5 per metric tonne in 2024Q4.
The Domestic Economy to Grow by 2.3 Percent in 2024
The Monetary Policy Committee noted that as at 2024Q2, growth for the domestic economy for 2024 was projected at 2.3 percent. This growth prospect reflects the impact of El Nino weather conditions on agricultural production, and continued shortages of foreign exchange. Real GDP growth was projected to pick up further to 4.3 percent in 2025.
Exchange Rate Stable in 2024Q3
The MPC observed that the kwacha remained relatively stable against the US dollar and traded at MK1,750.47 per US dollar as at the end of 2024Q3, after losing 87 tambala during the quarter. All foreign exchange auctions conducted during the quarter resulted in no change in maximum selling rates. However, the Committee noted that the kwacha lost notably against other major currencies, such as the British pound, the euro and the rand. Meanwhile, the Bureaux USD cash exchange rate stood at MK1,931.38 per US dollar on September 30, 2024, after losing MK5.84.
Money Supply Growth Increases in 2024Q3
Broad money supply (M2) grew significantly to 48.8 percent in 2024Q3 from 42.6 percent in the previous quarter and 33.0 percent in the corresponding quarter in 2023. This growth was largely driven by net claims on Government.
Inflation to Slow Down in 2025
The MPC noted that food prices were a major factor in the increase in overall inflation, which rose to 33.9 percent in the third quarter of 2024, up from 32.8 percent in the previous quarter. Food inflation increased to 42.5 percent, while non food inflation remained relatively stable at 22.3 percent. Looking ahead, inflation is expected to average 32.5 percent in 2024. Headline inflation is expected to decline significantly in 2025, largely on account of a supportive monetary policy stance, anticipated better climatic conditions and favourable base effects. However, growth in the money supply poses a key risk to this outlook.
The MPC Resolution
The MPC noted that while inflation is expected to ease in 2025, there are still risks that could disrupt this outlook. In particular, the rapid growth in money supply is a policy concern. Consequently, the MPC decided to increase the LRR ratio for domestic currency deposits by 125 basis points to 10.0 percent. However, the Committee decided to maintain the Policy rate at 26.0 percent and the Lombard rate at 20 basis points above the Policy rate. Furthermore, the MPC resolved to maintain the LRR ratio for foreign currency deposits at 3.75 percent.
Dr Wilson T. Banda
CHAIRPERSON, MPC.
Information Note: The next MPC meeting is scheduled for 29th and 30th January 2025. The decision will be announced on 30th January 2025.