RBM likely to hike interest rates following the 6.2% rise in inflation rate—Chief Economist Chifipa Mhango

* This is just the first round effects, we should expect secondary effects that will take Malawi inflation rate to 40%

* The first round effects will be like immediate increases in transport costs, then the secondary will be the impact of such on production value chain etc

By Duncan Mlanjira

The next move for Reserve Bank of Malawi (RBM) is to hike interest rates further from its current high lending rate of 24%, says Chifipa Mhango, Chief Economist for South Africa-based Don Consultancy Group — following RBM’s announcement that Malawi’s year-on-year headline inflation rate for November 2023 has quickened by 6.2 percentage points to 33.1%.

The rise in inflation is largely due to increases in food and non-food items, as shown by figures published by the National Statistical Office and further reduces the purchasing power following 44% devaluation of the Malawi kwacha in November.

Prices of essential commodities such as fuel, maize household needs and other basic items have gone high, and threatens inflation prospects to continue rising.

Thus Mhango, says in economics, this is just the first round effects, adding that the citizenry should expect secondary effects — “that will take Malawi inflation rate to 40%”.

“For instance, first round effects will be like immediate increases in transport costs, then the secondary will be the impact of such on production value chain etc.

“That then pushes prices of locally produced goods up — so this 6.2% rise is just first round effects. I predicted inflation rate of 40% by December 2023, and it’s happening.

“Remember this is November 2023 inflation rate. Then next move will be for RBM to hike interest rates further from its current high lending  rare of 24%.

“Which company would want to borrow to expand its operations under such an environment? We are scoring own goals in our country,” he said.

Soon after the devaluation of the kwacha last month, Mhango said the country’s economy is suffering from mismanagement of the fiscal framework and lack of a cohesive approach towards trade and industry policy implementation, as well as not dealing with the structure challenges in the economy, while applying short term solutions and wrong prescription.

He had said: “The devaluation of the kwacha is a short-term solution and at times a wrong prescription to the deeper challenges the Malawi economy is facing.

“The devaluation may satisfy the interest and position of the lending partners broadly but could damage the country’s social well-being and the economy further if not managed well considering that Malawi trade position is skewed towards importing and with relatively uncompetitive landscape to attract investment.”

The revered Malawian economist in his host nation, raised concerns around the inflationary outlook for the country, especially with the price increases of products and services within the Malawi economy.