More banks have continued to raise their interest rates Lombard facility introduced by the Reserve Bank of Malawi (RBM) to help stressed banks beginning January.
Economic commentators have, so far, linked the introduction of the Lombard facility which is pegged at two percentage points higher than the bank rate currently at 25 percent as being responsible for the increase in commercial bank’s interest rates.
FDH Bank yesterday announced the increase of its lending rate to 41.75 percent whereas Malawi Stock Exchange (MSE)—listed National Bank of Malawi (NBM) pegged its rate at 41.75 percent.
This followed increases by Standard Bank whose rate is at 39.5 percent and CDH Investment Bank earlier at 40 percent earlier in the week.
Chancellor College economics professor Ben Kaluwa earlier argued that RBM effectively raised the bank—the rate at which commercial banks borrow from the central bank—by pegging the Lombard rate at 27 percent
But RBM spokesperson Mbane Ngwira told Business News this week that the facility is meant to assist the commercial banks to borrow from the central bank easily.
He was surprised that commercial banks are raising their interest rates due to the facility which is supposed to bring in discipline on the market.
In December 2012, RBM raised the bank rate to 25 percent from 21 percent which prompted banks to raise their interest rates.
Commercial banks also increased their interest rates in March 2013 due to high Treasury Bills (T-bills) and a liquidity squeeze.
However, mid-last year, the commercial banks reduced their base lending rates after liquidity levels on the market improved.