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Malawi central bank maintains policy rate at 16%

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Malawi central bank maintains policy rate at 16%

The Reserve Bank of Malawi kept its policy rate unchanged at 16%, citing risks to the inflation outlook despite slower price increases in May.

The central bank also maintained its liquidity reserve requirement at 7.5% and the Lombard rate at 200 basis points above the policy rate.

The bank projects annual average inflation of around 9.0% in 2018, as inflation decelerated to 8.9% in May after peaking at 9.9% in March. It noted that inflation remained "somewhat elevated" in the first half of 2018 due to rebasing effects of the consumer price index, an electricity tariff adjustment in May, higher maize prices in January and February, and fiscal pressures.

"Going forward, these risks coupled with rising global oil market prices are expected to persist in the near term," the central bank said. "Maintaining the current monetary policy stance will help in containing the risks and directing inflation towards the medium-term objective of 5%."

The bank expects the country's real GDP growth to fall to 4.0% in 2018 from 5.1% in 2017 due to weak agricultural output, which has been affected by crop pests and irregular rainfall. However, the non-agriculture sector should remain robust in 2018.