FMB plc, Malawi Stock Exchange (MSE)-listed bank, has cut its base lending rate by 2.5 percentage points to 25 percent from 27.5 percent and increased the deposit rates for all products by an average of 44 percent.
FMB’s cut in base lending rate is the second and the lowest among all the 10 banks, since the Reserve Bank of Malawi (RBM) reduced its policy rate—the rate at which commercial banks borrow from the central bank as a lender of last resort—from 22 percent to 18 percent on July 24 this year.
FMB chief financial officer Michael Kadumbo said the move follows the bank’s in-depth analysis of the current macro-economic trends which include the sustained reduction in inflation rate, currently at 10.2 percent, stability of the kwacha and the increase in foreign exchange reserves, which are above three months of import cover or $1 billion.
“We have decided to revise our lending and deposit rates owing to the current level of macro-economic environment which is more favourable in comparison to three or five years ago when the economic environment was characterised by high inflation rates and instability of the Malawi kwacha,” he said at a news conference in Blantyre last week.
Kadumbo said they have taken this move to encourage investment attitudes in savers, to make credit cheaper for both existing and potential investors and to assist policymakers to promote investment and production in the real economy.
In an interview on the FMB plc decision, Catholic University of Malawi head of economics department Gilbert Kachamba said the new rates are a good development, but said the rates are on the higher side in comparison to the reduction in policy rate.
“This is progress and an opportunity for Malawians to borrow money at lower interest rates, but if we are to go by the reduction in the policy rate, the reduction in interest rate to 25 percent is still not substantial enough for those borrowing,” he said.
He, urged Malawians to only borrow when they have a plan for investing and not just for the sake of borrowing because of lower interest rates.