The Bankers Association of Malawi (BAM) has said the impact of the Reserve Bank of Malawi’s (RBM) policy rate stance, meant to support economic recovery, will take time to take full effect.
BAM’s sentiments are in reaction to the gradual reduction of the reference rate in relation to the policy rate which was maintained at 12 percent in order to support economic recovery.
In an interview Wednesday, BAM chief executive officer Lyness Nkungula observed that money market and treasury investment rates are still adjusting stating that borrowers are paying lower interest rates and will have more disposable income in coming months.
“Banks saw a reduction in lending interest rates following the November change. RBM has injected some liquidity into the market which should help reduce funding costs for banks. The market is slowly stabilising,” she said.
However, Nkungula cautioned that continually changing the policy rate would create volatility and potentially have inflationary effects if reduced by too much.
“We are sure RBM would want to observe the impact of the November adjustment before any further changes,” she said.
Published statements from commercial banks show that banks in February reference rate fell to 12 percent starting from 12.1 percent in January.
A reference rate is an interest rate benchmark used to set other interest rates. It is a weighted average of the policy rate, interbank rate, commercial banks savings rates and government Treasury Bill rates.
Central bank’s Monetary Policy Committee (MPC), which met for this year’s first meeting last week to review recent global and domestic economic developments, maintained the policy rate at 12 percent.
The decision according to the MPC statement signed by RBM Governor Wilson Banda was deemed necessary to contain the impending inflationary pressures whilst at the same time providing space for supporting recovery of the economy in the wake of the second-wave of the Covid-19 pandemic.
“The MPC noted that there is need to allow the impact of the November 2020 Policy rate reduction to transmit through the economy,” wrote Banda.
Meanwhile, investment and advisory firm Nico Asset managers has indicated that it is expected that the RBM will maintain an expansionary monetary policy rate to stimulate demand for local goods and services to increase capacity and meet consumption demands of the economy, until the country can secure a safe and durable exit from the crisis.