Liquidity levels increased during the week ending January 10 to an average of K20 billion from K7.2 billion per day while the interbank lending rate marginally decreased, signalling that banks did not struggle for liquidity.
The figures are based on the weekly market update from Nico Asset Managers Limited.
However, the Reserve Bank of Malawi (RBM) has been implementing a tight monetary policy to control money supply and rein in inflation, with the central bank last week issuing about K17.9 billion in tradable securities at over 40 percent interest.
Nico Asset Managers has said the issued securities, along with K6.4 billion repurchase agreements (Repos) which matured last week, yielded a net withdrawal of K10.5 billion from the market.
However, a money market expert argued the central bank is using a wrong policy to control inflation which, in November 2013, rose to 22.9 percent, according to the National Statistical Office (NSO).
Chancellor College economics professor Ben Kaluwa in interview last week said an improvement in liquidity is a sign that people cannot afford to borrow from commercial banks due to high lending rates.
As a further indication of an improved market liquidity, borrowing between banks averaged K2.47 billion per day in the week, decreasing from K3.27 billion per day in the week before.
The average interbank borrowing rate for the week marginally decreased to 24.78 percent from 24.88 percent in the previous week.
But regardless of the improvement in liquidity, most commercial banks have increased lending interest rates to about 40 percent in the wake of the Lombard rate and changes that were made to the Liquidity Reserve Requirement (LRR).
The Lombard rate, according to RBM, was pegged at 27 percent while the vault cash would not be used in LRR computation.
Although the Lombard rate was pegged at two percentage points above the bank rate, the Monetary Policy Committee (MPC) meeting held in December 2013 resolved that it was important to manage money market operations with a view to keeping money market rates around the bank rate currently at 25 percent.
RBM spokesperson Mbane Ngwira earlier noted that the open market operations are an intensification of the RBM’s tight monetary policy to achieve end-March and end-June liquidity targets.