AlwaysFree: Malawi Delivers Africa’s Biggest Rate Hike This Year

• Policymakers lift benchmark interest rate to 22% from 18%
• Inflation forecast to remain elevated, averaging 24.5% in 2023

According to Bloomberg article published on April 27, 2023, the Reserve Bank of Malawi raised interest rates by the biggest margin in Africa so far this year, as it forecasts inflation to remain elevated because of adverse weather conditions.

The monetary policy committee raised the rate to 22% from 18%, Governor Wilson Banda said in an emailed statement. That’s the steepest increase since October. It also lifted the liquidity reserve requirement ratio on local deposits by 200 basis points to 5.75%. 

The MPC acted as Cyclone Freddy, which struck the southern parts of the country for a second time in a month in March, and a drought in the northern region have worsened food-supply prospects and strengthened supply-side inflationary pressures, Banda said. “The committee also observed that the need to rehabilitate the infrastructure damaged by the cyclone has the adverse impact of amplifying aggregate demand and fueling inflation, requiring further tightening of monetary policy to dampen the demand effects,” he said.

Annual inflation, which quickened to 27% in March, is forecast to average 24.5% this year, compared with an earlier estimate of 18.2%, Banda said.

The central bank also expects the economy to grow at a slower pace in 2023 than 2.7% previously forecast because of the tropical cyclone, which was potentially the longest-lasting ever recorded, the drought, limited access to fertilizers, prolonged electricity power cuts and foreign-currency shortages.

Malawi in November became the first low-income nation to receive financing from the International Monetary Fund under a new tool intended to help countries cope with global food price shocks. 

The nation is among 48 countries the IMF identified as most at risk from the shock to food and fertilizer costs fanned by Russia’s invasion of Ukraine. 

The central bank maintained the Lombard rate at 20 basis points above the policy rate and the LRR ratio on foreign deposits at 3.75%.

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