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Malawi's central bank holds policy rate at 16%

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Malawi's central bank holds policy rate at 16%

The Reserve Bank of Malawi's monetary policy committee decided to maintain its policy rate at 16%.

The committee noted that a cautious monetary policy stance is needed given the persistent upside risks in the inflation outlook, despite sustained deceleration last year.

The committee also held the liquidity reserve requirement at 7.5% and the Lombard rate at 200 basis points above the policy rate. "Maintaining the current monetary stance is appropriate to consolidate the gains made so far especially the achievement of a single digit inflation and ensure that it converges to the medium term objective of 5%," the bank said.

Headline inflation in the country slipped to 7.8% in February after rising to 8.1% in the previous month. The slowdown was primarily driven by weaker pressure on food and non-food prices in February. The inflation rate is expected to stay in the single digits throughout the year as stability in the exchange rate and international oil prices should mute inflationary pressures from non-food items.

"However, a possible further increase in utility tariffs and potentially unchanged fiscal policy stance pose upside risks to this inflation outlook."

Malawi's economy grew by 5.1% in 2017 on the back of a bumper harvest, estimates show. For 2018, economic activity is expected to increase by around 4% due to irregular rainfall pattern during the growing season, among other things.