Rising level of Malawi inflation rate impacts on RBM’s monetary policy direction—Chief Economist Chifipa Mhango

* Latest data captured on RBM website indicates that the annual inflation rate in Malawi continued to climb

* To a 10-year high of 29.2% in May 2023 — up from 28.8% in the previous month of April 2023

* Of concern is the food inflation rate rising to 38.8% and has remained elevated to levels above 30% since June 2022

* This has had negative impact on the poor masses of Malawi as non-food inflation rate was marginal down by 0.1% in May 2023 to reaching 18.4%

By Duncan Mlanjira

The rising level of inflation rate in the Malawi economy to a 10-year high is concerning as it impacts on the monetary policy direction of the Reserve Bank of Malawi (RBM), says South Africa’s Don Consultancy Group through its Chief Economist, Chifipa Mhango.


He quotes the latest data release of June 20, 2023 captured on RBM website, which indicates that the annual inflation rate in Malawi continued to climb to a 10-year high of 29.2% in May 2023 — up from 28.8% in the previous month of April 2023.

“Of concern is the food inflation rate rising to 38.8% and has remained elevated to levels above 30% since June 2022,” Mhango said. “This has had negative impact on the poor masses of Malawi. Non-food inflation rate was marginal down by 0.1% in May 2023 to reaching 18.4%.”

The DCG Chief Economist further said if the current inflation rate rise continues based on future projections, then the RBM “may be forced to consider its position on the current interest rates environment with further hikes to arrest the situation”.

Chief Economist Chifipa Mhango

“In its previous meeting in April 2023, The RBM took an aggressive position to hike its lending rate by 400 basis points — from 18% to 22%, — indicating a worsening inflation outlook for the Malawi economy.

“The Malawi economy has suffered from elements of drought as well as Cyclone Freddy, which has disrupted food supply, with its impact to be felt for some months to come — thus hitting food inflation rate.”

He also observed that the RBM “is facing this inflation rate challenge, which is the highest rate in 10 years, in an environment where globally inflation rate across major economies is beginning to ease, attributed to moderation in food and energy prices”.

“The latest May 2023 data shows inflation rates easing to 4% in the USA, 6.1% in the Euro Area, 3.95% in Brazil, 4.25% in India — while on the African continent, there is also easing in the South African economy at 6.3%, Tanzania at 4%, Mozambique at 8.23% and Zambia at 9.9% based on the various countries’ National Statistics Offices data.

On the monetary policy front, Mhango said some of Malawi neighbouring countries such as Zambia, had its Central Bank deciding to raise its key interest rate by 25 basis points to 9.5% on May 17, 2023, after lifting it to 9.25% at its February meeting.


“Another neighbouring country to Malawi, Mozambique, its Central Bank held its key lending rate steady at 17.25% in its 31th of May 2023 meeting, keeping borrowing costs at their highest since March 2018.

“The bank’s decision was supported by the prevalence of high risks and uncertainties associated with inflation projections, despite the prospects of single-digit inflation in the medium term.”

In conclusion, Chifipa Mhango indicated that “in real terms, Malawi’s latest headline inflation rate of 29.2% is among the top 10 highest in Africa, with that of Zimbabwe leading at 86.5% — based on analysis of data from various countries’ National Statistics Offices”.

He emphasized that “what borrowers with an intent to invest would not want to see, is interest rates continuing to rise in the Malawi economy.”

Last week, when RBM announced in its annual a loss of K187.5 billion, Chifipa Mhango, raised red flag, saying “should not be ignored as it has dire consequences on the Malawi economy”.

RBM Governor, Dr. Wilson Banda

In its consolidated and separate annual financial statements posted on the bank’s website last week, Governor, Wilson Banda disclosed that during the year ended on December 31, 2022, RBM made a comprehensive loss of K187.5 billion — as opposed to a profit of K77 billion made in 2021.

The statement signed by the Governor and the Board Audit Committee chairperson, Maxwell Mkwezalamba, further said the bank also reported profit before foreign exchange revaluation of K93 billion in 2022.

“K20 billion was declared as dividend and distributed to the government in the year ended 31 December 2022 while K31 billion was transferred to general reserve account,” reads part of the statement, adding that in the year under review, RBM had foreign liabilities of K1.76 trillion against assets of K439.5 billion.

In his analysis, Mhango said on overall, RBM “has conceded that this is a going concern, while assuring us that the Reserve Bank has adequate resources to continue in operational existence for the foreseeable future.”


In his further analysis of RBM’s financial position, Mhango also observed that: “The Bank’s consolidated foreign liabilities against consolidated foreign assets has been in a deficit position even in the year ending 2021, with values of MK1.3 trillion against MK499 billion, whilst making a profit of MK77.4 billion — thus implying the year ending 2022 reflects a deteriorating position, with Government deposits unchanged at MK405 billion, while overall consolidated expenses growing by MK23.6 billion from year 2021 to 2022 to reaching MK108.6 billion.

“In any developed economy, with a strong financial system, a reporting of RBM making losses would cause markets trembling for the very nature that a Central Bank — in a normal nature — makes profits than losses because it is essentially a monopolistic business supplying an essential commodity which is the currency, hence its losses cannot be ignored.

“In a real economic function, the implications of Central Bank losses would lead to undermining of monetary management, slow financial market development, as well as derail the attainment of Central Bank’s overall economic objectives such as price stability (containing inflation rate) and economic growth.”

The DCG Chief Economist further said it is for this reason that he strongly agrees to the sentiments raised by the RBM that its current financial position is a “going concern” and that it must be closely monitored, and in real terms.

“This loss of MK187.5 billion should not be ignored and taken lightly,” he continued. “In one of the reports published by a local media house in Malawi, the RBM Governor Wilson Banda is quoted as attributing the loss to the revaluation of the bank’s forex liabilities following the 25% May 2022 devaluation of the Malawi currency.

“However, I would also not ignore the consolidated expense line of personnel expenses and operating expenses as reported in the Annual Report which shows a rise of MK30 billion from year 2021 to 2022, which is also concerning.

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“The RBM is a privileged entity and should not under any normal environment make losses for the very nature of its operations. Any investor hearing this message would be very sceptical of looking at Malawi as an investment destination of choice based on the risk profiling, as it would create an impression of a serious breakdown in financial discipline as well as doubts about the soundness of the entire financial system and the whole Malawi economy.”

Copied to Office of the President Lazarus Chakwera and Vice-President Saulos Chilima and the Minister of Finance & Economic Development, Sosten Gwengwe Mhango further said although the RBM has indicated that the MK187.5 billion loss is a going concern, “it remains to be seen as to what measures the bank will adopt in its operation strategy to turn around the situation”.