The Economics Association of Malawi (Ecama) and a professor of economics at Chancellor College have separately welcomed the Reserve Bank of Malawi (RBM) decision on Tuesday to cut the bank rate or policy rate by 2.5 percentage points to 22.5 percent.
They said the development would translate into easing the cost of borrowing in commercial banks and spur agricultural production and growing the economy further.
In an interview yesterday, Ecama executive director Nelson Mkandawire said it was acceptable for RBM to drop bank rate considering the fact that inflation rate continues to decelerate.
“Ideally, we have been making the call [to revise downwards the bank rate] for a while and if they have dropped it down, we fully accept it,” he said.
Added Mkandawire: “We have had prolonged high interest rates which have been a deterrent to most Malawians to borrow. This [reduction] is right and proper and we feel people can start going to the banks and start borrowing.”
He hoped that the decision to slash the bank rate would also help encourage a culture of investment among Malawians.
In a separate interview yesterday, Professor of economics at Chancellor College, Ben Kaluwa also backed RBM move to cut policy rate saying it will help anchor Malawi’s production cycle.
“This is the right time and it’s good for our economy especially to agro-related activities and hence it gives producers space,” he said.
But a Lilongwe-based banker yesterday cautioned against the move saying it could potentially trigger high borrowing from commercial banks which he said could induce a huge appetite for foreign exchange.
According to the banker, who opted for anonymity, said in turn that will likely exert pressure on foreign exchange market and increase the price of a unit of foreign currency hence weakening the local unit against other major currencies.
RBM’s Monetary Policy Committee (MPC), chaired by RBM Governor Charles Chuka, resolved the Committee resolved to adjust the policy rate downwards by 2.5 percentage points to 22.5 percent effective yesterday July 9 2014.
