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Dr. Perks Ligoya, Governor (Chairperson)
Mrs. Mary C. Nkosi, Deputy Governor
Dr. W.T. Banda, General Manager
Mr. N. W. Nyirongo, Executive Director, Economic Services
Mr. Joseph Mwanamveka, Secretary to the Treasury
Mr P. Mphwiyo, Deputy Director of Economic Affairs, Ministry of Finance
Mr. T. Sitimawina, Principal Secretary, Ministry of Development Planning
and Cooperation


Director, Research and Statistics (Secretary)
Director, Treasury
General Counsel and Bank Secretary
Director, Banking and Payment Systems
Director, Currency Management
Manager, Debt Management, Exchange Control and Debt Management
Principal Economist, National Accounts and Balance of Payments, Research
and Statistics

Dr. W. Masanjala, Senior Lecturer, Chancellor College
Mr. T. S. Chinkhwangwa, Executive Director, Supervision of Financial Ins
Director, Exchange Control & Debt Management

      Money supply
1.1   Money supply (M2) during October 2009 decreased by K2.6 billion to
      K172.9 billion following an increase of K1.7 billion during the
      preceding month. The decline was a result of a decline in Net Foreign
      Assets as Net Domestic Assets (NDA) went up during the month. The
      increase in net domestic assets was through its statistical components of
      domestic credit mainly credit to government and private sector as credit
      to statutory corporations declined.

1.2   Net domestic credit in October 2009 increased to K207.9 billion from
      K198.9 billion in September on account of a K5.2 billion rise in gross
      credit to the private sector and a K4.5 billion increase in net credit to
      government while statutory corporations reduced their obligations by
      K627.0 million.

1.3   The banking system’s net claims on government rose to K109.0 billion
      from K105.0 billion in September. This outcome was on account of an
      increase in credit from both monetary authorities and commercial banks.
      Monetary Authorities net credit to government went up by K3.0 billion
      following a K7.9 billion increase in Ways and Means advances which
      was offset by a K4.5 billion increase in deposits and a K400.0 million
      redemption of Local Registered Stocks (LRS). Commercial banks claims
      on government increased by K1.5 billion to K29.6 billion primarily due
      to an uptake of Treasury bills. Government total domestic borrowing
      was at K142.8 billion in October from K138.8 billion in the previous

1.4   The banking system’s claims on statutory corporations decreased by
      K627.0 million following repayment by ESCOM and Blantyre Water
      Board to commercial banks. The total outstanding debt stock of this
      sector stood at K5.7 billion as at end October 2009.

1.5   Growth in the banking system financing to the private sector was
      sustained largely supported by higher loan disbursement in October
      2009. Credit to the sector increased by K5.2 billion to K92.7 billion
      from K87.5 billion in the preceding month. Most of the credit was in
      form of commercial and industrial loans which rose by K3.2 billion
      earmarked for agricultural related activities and working capital.
      Agriculture and mortgage loans amounted to K667.9 million whereas
      foreign exchange loans amounted to K778.7 million. Loans to individual
      households dropped by K62.7 million. Over the year, credit to the
      private sector has increased from K66.3 billion to K92.7 billion,
      representing an increase of 39.8 percent.

1.6   Smallholder Farmers Fertilizer Revolving Fund of Malawi (SFFRFM),
      Press Group, Illovo Sugar Malawi Limited and Agriculture Development
      and Marketing Corporation (ADMARC) still remained the four largest
      borrowers from the banking sector. The overall total outstanding loan
      balance as at 30th October 2009 was K22.6 billion from K19.7 billion,
      recorded in September 2009. On the other hand, the total outstanding
      balances for ten major borrowers stood at K34.2 billion taking on board
      tobacco companies, ESCOM and Mulli Brothers. Most of the credit was
      made available for the importation of fertiliser. Other facilities were
      availed for working capital.

1.7   Net foreign assets of the banking system dropped by US$36.2 million to
      US$15.1 million owing to a US$18.8 million drop in net foreign assets
      of monetary authorities while commercial banks net foreign assets
      dropped by US$27.4 million. Consequently, the banking system’s
      import cover stood at 2.2 months of imports from 2.4 months of imports.

1.8   Reserve money developments, as observed up to 20th November 2009,
      were slightly expansionary, increasing by K211.7 million to K50.8
      billion on account of both net foreign assets and net domestic assets. Net
      domestic credit rose to K58.8 billion from K58.6 billion in the previous
      week. The outturn was explained by a K3.0 billion increase in other
      items (net) that was partly offset by a K2.9 billion decrease in net credit
      to government.
1.9   Net claims on government declined to K76.6 billion from K79.4 billion
      following K1.2 billion repayment of Ways and Means advances and
      K1.7 billion replenishing of deposits. Deposits were a result of US$5.0
      million (K718.4 million) Irish aid for Education Infrastructure Project,
      US$4.4 million (K635.5 million) receipts from Norway for Health
      SWAp activities and US$1.7 (K235.7 million) grant from the World
      Bank for Regional Community Infrastructure program.

      Inflation rate

1.10 Inflationary pressures during October 2009 continued to abate as overall
     inflation decelerated by 0.2 percentage points to 7.3 percent from 7.5
     percent in the previous month. In the similar month of 2008, headline
     inflation stood at 9.4 percent. The deceleration mainly emerged from
     slowdowns in beverages and tobacco, housing, household operations and
     miscellaneous category because food inflation remained unchanged from
     September 2009 due to availability of food.

      Tobacco auction sales
1.11 Total tobacco sales for 2009 amounted to 232.1 million kilograms
      compared to 195.0 million sold in 2008, representing an increase of 19.0
      percent. This largely constituted burley tobacco whose production
      amounted to 208.0 million kilograms or 89.7 percent of the total. Sales
      of flue cured tobacco stood at 20.5 million kilograms, against 23.7
      million kilograms sold in 2008. Tobacco prices in 2009 averaged
      US$1.87/kg compared to US$2.42/kg in 2008 representing a decrease of
      23.2 percent. The lower prices were partly attributed to the global
      financial crisis which made it difficult for tobacco buyers to access
      credit from international lenders to procure the tobacco. In addition it
      was widely held that the country overproduced tobacco this year with
      respect to the buyers’ requirements. Total earnings for 2009 stood at
      US$433.1 million compared to US$472.4 million realized in the
      preceding year. However, tobacco earnings were still considerably
      higher than any other year prior to 2008.
     Foreign exchange market conditions
1.12 Gross official reserves declined to US$197.3 million or 1.53 months of
     imports as at 30th October 2009 from US$205.3 million or 1.59 months
     of imports as at end September 2009. This was due to a slow down in
     receipts from Auction Floors as the tobacco marketing season drew to a
     close, coupled with rising demand for foreign exchange for importation
     of agricultural inputs and petroleum products. Private sector reserves
     followed the trend and closed the review month at US$137.1 million or
     1.06 months of imports from US$156.5 million or 1.21 months of
     imports in September. By 13th November, official reserves dropped
     further to US$177.9 million or 1.38 months of imports.

     Money market situation
1.13 The liquidity overhang in the banking system continued throughout
     October with excess reserves averaging K3.9 billion a day. The inter-
     bank market rate increased by 65 basis points to close the month at 4.07
     percent. However, the period up to 13th November saw a sharp reversal
     in the trend as the market became moderately illiquid owing to net
     outflows experienced by banks due to tax payments by their major
     customers. Excess reserves averaged K875.3 million per day whilst the
     inter-bank market rate closed higher at 8.0 percent.

1.14 In view of the market conditions, contractionary monetary operations
     managed to mop about K2.0 billion from the system through repos
     which were supported by foreign exchange sales. A drop in government
     expenditures reduced net fiscal injections to K3.3 billion compared to
     K8.6 billion during the previous month. By 13 November 2009, open
     market operations assisted by foreign exchange operations removed a
     total of K6.4 billion. Government operations withdrew about K3.0
     billion mainly through net issuances of Treasury bills. In view of the
     foregoing, reserve money dropped slightly to K54.9 billion as of 30
     October 2009 and fell further to K50.6 billion as of 13 November 2009
     following substantial decline in both currency in circulation and bank
     Government Performance
1.15 The government fiscal deficit worsened during the month of October
     2009, albeit marginally, from K8.04 billion in September 2009 to K8.72
     billion. However, the current primary balance improved from a deficit of
     K8.09 billion in September to a deficit of K7.98 billion. The deficit was
     financed through domestic borrowing.
1.16 Total government revenues during the month under review amounted to
     K14.81 billion against K13.89 billion in the preceding month,
     representing an increase of 6.6 percent. All revenues were from
     domestic sources as there were no foreign inflows. Malawi Revenue
     Authority (MRA) was the major collector with a collection of K12.05

1.17 Total government expenditures during the month under review
     amounted to K23.53 billion compared to K21.93 billion recorded in
     September 2009. A large part of expenditures were recurrent
     expenditures, particularly government withdrawals (K16.37 billion),
     reimbursement to commercial banks (K2.76 billion), transfer to
     commercial banks (K1.22 billion) out of which K1.00 billion was
     transferred to Malawi Savings Bank for Youth Development Program
     and other expenditures amounted to K2.44 billion, of which about K1.00
     billion was payment to insure ESCOM service.

Treasury Bills (T-Bills) Primary Market
1.18 Total treasury bills subscriptions for the month of October amounted to
     K35.4 billion, an increase of 26 percent from subscriptions of K28.1
     billion received in the month of September. The increase in
     subscriptions was on account of over-issuance during the month
     necessitated by persistently high liquidity conditions that continued to
     prevail through October owing to changes in tobacco marketing

1.19 Ordinarily, subscriptions in October are lower as investible funds are
     channeled into acquisition of farm inputs in readiness for the impending
     planting season. The situation was different this time as most of the
     tobacco on offer was sold towards the end of the marketing season due
      to pricing concerns. Following the over-issuance in October, episodes of
      over-subscriptions on Treasury auctions as well as the liquidity overhang
      are expected to ease somewhat.

1.20 Total Treasury bill issues in October amounted to K13.7 billion, 46.1
     percent down from K25.4 billion recorded in September. These
     included K8.7 billion normal issues aimed at settling maturities of
     K8.5 billion in the month, and K5.0 billion conversions from Ways
     and Means advances. These developments resulted in net Treasury
     bill issues of K5.2 billion.


2.0   Members noted that during October 2009, inflation eased to 7.3 percent
      and short to medium term forecasts indicate that there were no signs of
      inflationary pressures. Thus reaching the annual average inflation
      projection rate of 8.3 percent at the end of 2009 seemed achievable.
      Furthermore, monetary policy works with a lag, and would therefore not
      be able to exert much influence on inflation for the remainder of the

2.1   Members also noted that fiscal pressures had persisted. The budget
      deficit of K8.7 billion during the period under review had mainly been
      financed by the Reserve Bank, contributing to the expansionary
      monetary developments. The support from fiscal policy is critical in
      attaining price stability. During the first and second quarter of the fiscal
      year, support from fiscal policy has slipped, thereby increasing pressure
      on monetary policy.
2.2   In the period under review, the Bank had supported the market by way
      of unprecedented sales of foreign exchange and gross official reserves
      were on the decline. With the closure of the tobacco season and the fact
      that demand for foreign exchange increases towards the end of the year,
      increased pressure on the reserves was expected.

2.3   Members further observed that there were strong indications that the
      Malawi economy had so far been fairly insulated from the international
      financial crisis, but may suffer second round effects through lower
      export demand and prices and less assistance from developed countries.
      Malawian banks were little exposed to the global financial system, and
      had so far been less affected by the crisis. However, to ensure continued
      financial stability in the current situation, it was important to maintain
      strict surveillance and to ensure that banks have sufficient liquidity.

2.4   To sum up, fiscal developments and pressures in the foreign exchange
      market point to a need for a tighter monetary policy. However, there
      were limitations to what monetary policy could attain without the
      support of fiscal policy. Given the current policy of maintaining limited
      flexibility in the Malawi Kwacha, it was recommended that it was
      essential to tighten both fiscal and monetary policy stance if the goal of
      reserves accumulation is to be achieved.


3.0   The MPC therefore resolved to:

   Maintain tight monetary policy through intensified open market
   Maintain the bank rate at 15.0 percent

      Date of the next meeting

4.1   The meeting closed at 12:46 hours. The date of next meeting would be
      communicated to members by the Secretariat.

Dr. Perks Ligoya                                               Efford Goneka
CHAIRPERSON                                                    SECRETARY

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