Malawi commercial banksâ€™ borrowing from the discount window markedly dropped last week to K10.7 billion (about $37 million) from an average of K20 billion (about $66 million) per day.
Market analysts argue this is an indication that the market could be moving towards liquidity stabilisation, albeit it is too early to gauge.
This means that banks will likely be meeting depositorsâ€™ needs and perhaps result in the softening of lending rates which have been exorbitant because of their borrowing through the discount window.
Since mid this year, when the Reserve Bank of Malawi (RBM) devalued the kwacha by nearly 50 percent and subsequently floated it, the commercial banks have been facing a liquidity squeezeâ€”a time cash resources to meet depositorsâ€™ demands is in short supply.
Noticing that the demand for capital by the banks was so high, the RBM was prompted to introduce a non-collateralised discount window borrowing on June 1 at a rate of 18.5 percent and raised it to 23.5 percent in July.
But RBM Governor Charles Chuka advised the commercial banks heads in July that the non-collaterlised window can only be justified as a temporary measure and will expire at the end of the month.
The banks have, however, continued to borrow from the RBM using the facility until today.
Data obtained from market analysts show that in the week up to November 23, the discount window daily rate has slightly dropped to 22.96 percent from 23.217 percent.
But analysts say it is difficult to determine the reasons behind the drop, and it would be difficult to predict the trend.
â€œThis is still a far cry from the substantial pre-devaluation surpluses, but it may indicate a move towards stabilisation,â€ reads a weekly report from Blantyre-based Alliance Capital Limited.
In April this year, the liquidity levels burgeoned to more than K12 billion (about $40 million), a development analysts then attributed to monetary authoritiesâ€™ helplessness to control its upward spiral.
On the other hand, interbank activity has remained relatively constant at K2.1 billion (about $7 million) at a higher simple weighted average rate of 22.39 percent against 21.9 percent.
The portfolio investment management firm says since the uncollateralised discount window facility was introduced as a â€˜stop-gapâ€™ measure to deal with an emergent liquidity crisis, the trading without security has now become the norm in the market.
â€œThere are inherent risks in adopting this mode of trading and all players need to be mindful of their exposures and to manage them appropriately,â€ says the firm.
Market analysts argue that to gauge the seriousness of Malawiâ€™s bank liquidity crisis, there is need to understand whether the problem is systemic or is bank specific where a few â€˜sickâ€™ banks are distorting the whole picture.
The RBM has not come out in the open to reveal the banks that are surviving by borrowing from the discount window, currently at 23.5 percent.
But Chuka, in an interview in September, said the low bank liquidity is a much different problem. He assured that Malawiâ€™s banks are sound and well capitalised as well as doing their business.