Monetary Policy Committee Statement
The Monetary Policy Committee(MPC), at its November 19-20,2018 Meeting decided to maintain the Policy Rate at 9.75%. Although inflation is projected to exceed the upper bound of the 6-8% target range during the first three quarters of the forecast period, it is expected to return to the target range thereafter. As some of the upside risks identified in the August MPC meeting materialised, inflation continued to rise and ended the third quarter just below the upper bound of the target range thereafter. As some of the upside risks identified in the August MPC Meeting materialised, inflation continued to rise and ended the third quarter just below the upper bound of the largest range. Annual overall inflation rose to 7.9% in September 2018 from 7.4% in June 2018, largely reflecting higher prices of some food items and the depreciation of the Kwacha against the US dollar. Indicators of economic activity suggest that economic growth remains subdued with heightened downside risks. Credit to the private sector continued to recover albeit at too low a pace to stimulate significant economic activity. The El Niño forecast in the 2018/2019 farming season, delayed implementation of fiscal adjustment measures as well as rising debt and debt service payments continue to pose downside risks to economic growth. Although the non-performing loans(NPLs) ratio declined to 11.3% from 12.4%, it remained above the 10% prudential threshold, thereby posing a threat to the stability of the financial system. The fiscal deficit for 2018 is now projected at around 7.0% against a target of 6.1% in the 2018 Budget Address. Fiscal consolidation therefore continues to be a critical requirement for macroeconomic stability. Should the rising risks to inflation materialise, an upward adjustment in the Policy Rate may be necessary to prevent inflation from persistently staying above the target range.