The Reserve Bank of Malawi (RBM) says it is monitoring the market and will continue to make prudent decisions to mitigate the impact of the Covid-19 pandemic on financial institutions.
RBM spokesperson Mbane Ngwira said in an interview on Monday that the central bank is aware of some major downside risks that could trigger “a more prudent monetary policy stance”.
The sentiments follow Nico Asset Managers’ Mid-year Economic Report which implored the central bank to continue taking prudent steps throughout 2020, including easing the monetary policy to prevent economic meltdown.
Nico Asset Managers said it also expected the central bank to make further cuts in the Liquidity Reserve Requirement (LRR)—percentage of total deposits that commercial banks are mandated to hold as deposits with the central bank, Lombard rate, the rate at which commercial banks borrow from the central bank and in worst- case scenario cut the policy rate in the short run.
But Ngwira said RBM is cautiously forward-looking on the market, adding that the bank’s earlier reports indicated that inflation developments required the Monetary Policy Committee (MPC) to tighten policy.
He said: “Our reports suggested otherwise. However, when the MPC met they considered the plight of the economy and they resorted to reduce the LRR and the Lombard rate.
“That was to balance between recovery and inflation. The situation would be reviewed end this month by the MPC.”
In April this year, MPC announced some measures to incentivise banks, including pushing LRR downwards by 125 basis points to 3.75 percent.
This reduction immediately released about K12 billion into the banking system.