The money market seems to have stabilised with a positive closing liquidity position of K4 billion (about $16m), analysts have said.
This weekâ€™s liquidity position is in sharp contrast to a fortnight ago when the sharp drop in liquidity levels stunned market analysts who grappled to understand the cause or the monetary policy tools that authorities are deploying to cut excess money.
In fact, the economy experienced a liquidity deficit, which simply means less cash circulating in the system than people are demanding, a stunning turnaround from a kwacha oversupply of K12 billion (about $48m) in April.
However, the stability position notwithstanding, the average interbank rateâ€”the rate of interest charged on short-term loans made between banksâ€”is at 15.82 percent, against the bank rate of 16 percent, reflecting liquidity challenges, according to portfolio and investment managers Blantyre-based Alliance Capital Limited in their weekly review.
“This reflects that some banks were or are facing liquidity challenges and are being punished via higher rates, interbank trades were recorded at K2.08 billion…while discount window accommodation was K9.75 billion (about $39m),” says a commentary fromAlliance Capital Limited.
There is speculation that the Reserve Bank of Malawi (RBM) maybe taming excess kwacha supply to rein in the demand for foreign exchange.
The levels of liquidity, in other words, money in circulation, has for the past months, been rising largely due to the shortage of foreign currency in Malawi which has been prevalent for the past two years or so.
But in the weeky review, the firm attributed the stability on the market to funds being moved to banks with foreign currency following the Reserve Bank of Malawi (RBM) policy shift in which tobacco dollars are being channelled directly to Authorised Dealer Banks (ADBs).
Under this situation, banks with a greater share of tobacco-dollar market are the ultimate beneficiaries.
“Ideally, this should spur competition to invest in and support farmers for banks to access their valuable “export” earnings,” reads part of the commentary.
Perhaps reflective of the higher liquidity levels in the market, last week saw an oversubscription at the Treasury Bills (TBs) auction with total applications of K3.1 billion (about $12.4m) against a requirement of K1.2 billion (about $4.8m).
Analysts predicted that the banking industry could be heading for stability in liquidity levels in the near future.
In April this year, the liquidity levels burgeoned, a development analysts attributed to monetary authoritiesâ€™ helplessness to control its upward spiral.
But the analysts say meaningful reduction in excess reserves is, perhaps, only achievable upon achieving reasonable inflows of foreign exchange reserves to settle the huge backlog of foreign bill.
Figures indicate that official foreign exchange reserves as at May18 2012 stood at $87 million, which is less than one month of import cover. The remainder $187 million are private sector reserves, reflecting policy change of tobacco dollars.