Borrowing among banks or interbank borrowing has eased as evidenced by lowering of interbank rates by four percentage points from January this year, Reserve Bank of Malawi (RBM) figures show.
Money market analysts have attributed the development to the availability of liquidity on the market and in the banking system.
Bridgepath Capital Limited chief executive officer Emmanuel Chokani on Sunday said liquidity has been caused by measures instituted by the RBM.
“The recent one being the reverse open market operations [OMO] which put about K90 billion in the market in the last two to three weeks,”he said.
OMO is an activity by a central bank to give or take liquidity in its currency to or from a bank or a group of banks. Central banks usually use OMO as the primary means of implementing monetary policy.
Analysts say in view of the Covid-19 pandemic, RBM has been implementing accommodative monetary policy measures to, among others, help spur economic growth by making more cash available to lenders who would borrow for various investment needs, but also help banks to have more cash and normalise their balance sheets.
The measures, meant to cushion the banks from collapsing, included the reduction of the liquidity reserve requirement (LRR)—percentage of total deposits that commercial banks are mandated to hold as deposits with the central bank— downwards by 125 basis points to 3.75 percent.
Further, the central bank also cut the Lombard Rate— the rate at which distressed commercial banks borrow from the central bank—to two percentage points above the policy rate, effectively reducing the cost of funds for commercial banks.
Cedar Capital Limited chief executive officer Armstrong Kamphoni, in an earlier interview, also said most banks are now liquid and have found less need to borrow from each other as well as from the RBM’s discount window for borrowing.
Meanwhile, figures contained in the RBM’s Financial Market Developments report indicate that interbank rates are now at 10.36 percent from 14 percent recorded in the same period last year.
The figures further show that in the week ending February 12, traded volume on the overnight interbank market decreased to a daily average of K5.51 billion from K13.55 billion in previous week, at an average rate of 10.38 percent.
