By Duncan Mlanjira
The Reserve Bank of Malawi (RBM) has over time, developed an improved and modernised monetary policy frameworks, tools and instruments consistent with the prevailing structure and operations of the financial system.
RBM Governor Dalitso Kabambe said this on Monday during the Monetary Policy Conference at Nkopola Lodge in Mangochi, saying, there are currently three notable monetary policy frameworks that have been developed and are being used extensively.
RBM Governor Kabambe
“These include; the Exchange Rate Targeting, Monetary Aggregate Targeting and Inflation Targeting.
“The choice of any type of these frameworks is guided by peculiarities of individual economies. For instance, for countries such as Malawi, which have chosen independent monetary policy frameworks, we only have two options — either; Monetary Aggregate Targeting, where a Central Bank directly influences the quantity of money in the economy (this is based on the quantity theory of money or the so called Fischer equation of exchange);
“Or Inflation Targeting, where a Central Bank directly influences the level of interest rates leaving monetary aggregates play out an informative role (this is mostly implemented via the Taylor type rules).
Some of the delegates
“As the structure of the financial system radically changes with the inclusion of several other players such as Tech Companies issuing their own digital currencies, we will need to rethink the way we will conduct monetary policy.”
On financial stability, Kabambe said the Central Banks have over time developed regulatory instruments, frameworks and tools which are being used to regulate the financial sector to guarantee financial stability of the banking sector and entire financial system.
Kabambe and Thom Mpinganjira
“As a matter of fact, commercial banks are some of the known institutions which are heavily regulated to ensure that depositors’ funds are properly protected at all times.
“With the coming in of the other entities, such as Tech Companies, which are not regulated by Central Banks currently, it will be important to relook at the frameworks and legislations to suit the new framework and guarantee financial stability.
“This conference is, therefore, meant to deliberate these matters and provide insights into how we move forward as a country.
“Similar debates are also taking place in all other countries across the world and the RBM stands ready to listen to all constructive suggestions and views on the subject matter.”
He said the conference comes at a time when the global economy has lost momentum and slowed down following a decade and half of extraordinary economic performance.
“Based on the July 2019 IMF’s World Economic Outlook (WEO), global growth is projected at 3.2 percent down from 3.6 percent in 2018 and 3.7 percent in 2017.
“Global growth has slowed down due to a number of headwinds, key among them; the rise in trade tensions and tighter financial conditions.
“We live at a time the United States of America is reviewing its trading arrangements with partners; the United Kingdom is reviewing its relationship with its sister European Union nations and the global multilateral trading system under the auspices of the World Trade Organisation (WTO) is undergoing great uncertainty.
“The second headwind is the monetary policy normalization in advanced economies aimed at addressing the prevailing negative interest rates.
“This is also complemented by the unwinding of Central Banks balance sheets. Both these developments are leading to global monetary policy uncertainty and tightening of financial conditions.
“The third headwind is coming from China where the authorities are introducing necessary deleveraging reforms for rebalancing their economy and making growth more sustainable.
“The last headwind is arising from the current unprecedented levels of stockpiles of debt. The global economy is currently sitting on catastrophic debts which have never been seen before at an all-time record of US$247 trillion in nominal terms which is equivalent to 305 percent of global GDP in 2018.
“Top among the list of borrowers are the United States of America, China and Japan and together, they account for two thirds of the global debt, exceeding their share of global output.
“On average, global debt now exceeds US$114,000 in per capita terms and is weighing heavily on the global economy.”
Kabambe went on to say that for the advanced economies, growth is projected at 1.9 percent and for the emerging economies, growth is projected at 4.1 percent.
“In Sub-Saharan Africa region, growth is projected at 3.4 percent in 2019 with South Africa and Nigeria, two of the leading economies in the continent growing at 0.7 percent and 2.3 percent, respectively.
“Here in Malawi, growth is projected at 5 percent up from 4 percent in 2018 and is expected to rise further to 6-7 percent in 2020 and beyond.
“Inflation has also been anchored in single digit and trending downwards despite the threats of run-away maize prices; the exchange rate is also stable after many years of volatility, base lending rates, as reflected by the Reference Rate at 12.3 %, are also at their lowest since 1980s.
“Non-performing loans (NPLs) at 4.3 % are also within the 5% maximum regulatory levels; banks are adequately capitalised, liquid and profitable; and private sector credit is slowly and steadily picking up latest being a month-on-month growth of 19.11 percent in September 2019.
“Malawi’s economic performance therefore continues to demonstrate resilience from climate change and weather related shocks, a track record from 2002, despite experiencing a major Cyclone Idai in 2019, and being an election year.
“The narrative, going forward though, is that we should progress from simply stabilizing the economy and building its resilience to strong growth which will create more wealth at household and national levels, create jobs for the majority of youth, male and female, entering the job market every year and providing the well-being and opportunities for all Malawians in this country,” he said.