Bloomberg News

Malawi Keeps Interest Rate at 6-Year High as Inflation Persists

January 21, 2013

Malawi’s central bank maintained its benchmark interest rate at 25 percent, a six-year high, as it maintains its fight against inflation, the monetary policy committee said.

The decision was based on “the need to allow more time for the recent monetary tightening to work through the system,” the Lilongwe-based bank said in a statement published on its website.

The central bank raised the benchmark rate by 4 percentage points in December to curb an increase in prices and stem weakness in the southern African nation’s currency. Inflation accelerated 33.3 percent in November from 30.6 percent in October, the bank said.

President Joyce Banda devalued the kwacha by a third against the dollar a month after taking office in April and deregulated fuel prices. That was in line with recommendations from the International Monetary Fund to allow the resumption of donor aid. Gasoline costs have climbed 69 percent since May.

Growth in money supply dropped to 18 percent in November from a year earlier, compared with 23 percent in the preceding month, the bank said. Net credit to government from banks rose to 139.7 billion kwacha ($403 million) in November compared with 125.6 billion kwacha a month earlier.   

Malawi is Africa’s biggest exporter of burley tobacco, a low-grade variety of the crop, and Limbe Leaf Tobacco Co., a unit of the U.S.-based Universal Corp. (UVV:US), Alliance One International Inc. (AOI:US) and Japan Tobacco Inc. (2914) are among buyers in the country. About half of the population of 15 million live on less than $1 a day, according to the International Monetary Fund, while the government relies on donor funds to finance 40 percent of its budget.

The kwacha was the worst performer in Africa last year against the dollar, slumping 51 percent. The currency retreated 0.4 percent to 346.5 per dollar by 8:46 a.m. in the capital, Lilongwe, taking its drop this year to 3.4 percent.

To contact the reporter on this story: Frank Jomo in Blantyre at fjomo@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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