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MONETARY POLICY FRAMEWORK 

IN MALAWI

NOVEMBER 2008

KUNDUCHI BEACH HOTEL- DAR ES

SALAAM

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Overview of Presentation

MONETARY AND FINANCIAL STATISTICS IN MALAWI

Overview of Presentation

Introduction

Objective of Monetary Policy 

Monetary target Regime

Monetary Instruments

Challenges

Conclusion

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Introduction

Introduction

The Reserve Bank Act stipulates that monetary policy 

in Malawi will be conducted by the Reserve Bank of Malawi.

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Objective of Monetary Policy

Objective of Monetary Policy 

Monetary Policy in Malawi is aimed at promoting

economic growth, employment and maintain ace of sustainable balance of payment.

However in recent years the Reserve Bank of Malawi·s focus has mainly been that of maintaining

price stability.

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Monetary Target Regime

In trying to attain its goal of price stability the RBM use control of 

money supply as its intermediate target.

M2 is targeted because of monetarist assumption that the cure for 

inflation is a monetary one.

MV = PY

Reserve money is the operating target because the central bank 

cannot directly M2

M =m* RM

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Monetary Target Regime Cont.

The main objective of money market operation is to meet

quantitative targets of RM, NDA, NFA

RM = NFA + NDA

Ceiling on Net Domestic Assets

If NDA or RM grow strongly, the RBM has to mop up and accept to

offer higher interest rate.

Floor on net foreign Assets

     To protect external position

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Monetary Instruments

Monetary Instruments

The monetary instruments that are used to affect reserve

money are Open Market Operations, Discount window facilityor bank rate, Liquidity Reserve Requirement.

1. Open Market Operations

Outright and REPOs- government securities

Reserve Bank Of Malawi Bill

RBM Bond- 5 year 

Since 1994 more emphasis has been on the indirect instruments

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Monetary Instruments Cont.

Monetary Instruments Cont.

1. Direct Instruments

Discount Window 

The Bank rate is used as reference rate and signal

device.

Adjustment in bank rate influences lending ratesin the economy 

Liquidity Reserve Requirement

To force Banks to cut bank on lending

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Challenges

Challenges

RBM needs to have relevant information on future stance of 

reserves before engaging in its operation

Liquidity forecasting

     Timing of Government Operations

Monetary Policy Transmission mechanism

     Considerable uncertainty surrounds the monetary policy

transmission mechanism

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Challenges

Challenges Cont.

Informal banking sector 

     Currency in circulation is high- thwarts RBMs ability to

conduct monetary policy

Central Bank Independence     Periodical recourse to central bank resources