Liquidity levels in commercial banks seem to have slightly improved in the past week to K2.63 billion from K1.04 billion a day the previous week, according to a weekly market analysis report.
Money market analysts say this signals that commercial banks are not struggling for liquidity and have sufficient funds to lend to their customers.
A report from Nico Asset Managers shows that last week, interbank borrowing, which is borrowing between commercial banks, averaged K2.20 billion per day in the week under review, a drop from K4.96 billion in the previous week, a sign of improved market liquidity.
At the same time, the interbank borrowing rate for the week decreased to 22.58 percent from 23.01 percent the previous week, according to the report.
As a further indication of improved liquidity, access to the Lombard facility—a discount window borrowing for stressed banks-—also decreased to an average of K900 million per day from K5.23 billion per day in the previous week.
Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira on Monday said the trend was necessitated by the K1.44 billion injection of the K33.81 billion matured government securities during the week.
He said the central bank has all along been mopping out excess liquidity by rolling over maturing securities on top of issuing new securities.
Ngwira said RBM’s strategy has been to contain certain macroeconomic variables in line with the growth prospects of the economy.
But a market analyst Cosmas Chigwe, while acknowledging that the market was liquid during the week due to money market operations notably the treasury bills and Open Market Operations (OMOs) maturities, observed on Monday that the market has been fluctuating from time to time.
OMO refers to the buying and selling of government securities in the open market to expand or contract the amount of money in the banking system, which is facilitated by the RBM.
Said Chigwe: “The market has mostly been fluctuating due to OMOs by the central bank. Since the move to conduct a lot of OMOs started sometime back, we have constant maturities almost every day and sometimes these can lead to increase in market liquidity.
“This is usually temporary as excess liquidity usually ends up going back to the central bank through new OMO issues which is dependent on the market’s capacity to absorb the maturities in a particular week.”
He said while overall market liquidity has been kept to a minimum by the central bank, the trend is likely to continue in the short to medium-term. n