The International Monetary Fund (IMF) has called for a review of the reference rate formula, arguing that it is less transparent and raises banks’ intermediation costs.
But Bankers Association of Malawi (BAM) has argued that the new measure is working well and has given an opportunity to lenders to know the lending rate.
In its Country Report for Malawi, the global lender has advised the Reserve Bank of Malawi (RBM) to continue addressing structural barriers by reducing the cost of borrowing, including developing a road map to improve access to finance.
“IMF urges the Reserve Bank of Malawi to raise repurchase agreement rates in order to more effectively mop up liquidity and keep the interbank rate aligned with the policy rate,” reads the report in part.
In an effort to improve financial intermediation and access to finance, thecentral bank in May this year, unveiled the new calculation formula for determining reference rate or base lending rate for commercial banks.
This meant that the RBM changed the composition of the reference rate for commercial bank lending rate by including three other rates in the calculation of the base lending rates for banks.
RBM Governor DalitsoKabambe is on record as having said that the reference rate, which is now the base lending rate, will be moving in line with the change in market rates of the 91-days Treasury bills, interbank rate, the saving rate as well as the Lombard Rate.
Previously, commercial banks base lending rates were unified and set at Lombard Rate, which was at 0.4 percentage points above the policy rate or bank rate.
In reaction to the IMF suggestion, RBM spokesperson MbaneNgwira said in an interview on Tuesday that policies are always reviewed for their effectiveness.
“However such reviews need to be given time for authorities to have enough time to have enough data for review,” he said.
On his part, BAM president KwaneleNgwenya, who is also NBS Bank plc chief executive officer, in an interview on Monday, said: “The reference rate has been debated extensively within the financial sector and with our partners. BAM believes this is a transparent system where customers and banks both understand the composition of reference rate.
“We have moved well in this regard. In the past, it was not clear as it is now, but now customers appreciate and understand this better,” he said.
In view of the RBM directive on reference rate, BAM administers the new interest rate reference system and has been tasked to calculate and announce the monthly reference rates at the beginning of each month.
During the last Monetary Policy Committee (MPC) meeting in October this year, RBM maintained the policy rate or bank rate at 13.5 percent.
MPC also maintained the Lombard Rate at 0.4 percent above the policy rate.