RBM maintains bank rate at 25%
The Reserve Bank of Malawi (RBM) has resolved to maintain the bank rate at 25 percent, a month after the central bank hiked the rate from 21 percent in December.
“After a thorough assessment of the recent economic developments, the MPC [Monetary Policy Committee] resolved to maintain the Bank rate at 25.0 percent and the Liquidity Reserve Requirement (LRR) at 15.5 percent,” said RBM in its latest MPC minutes released on Friday.
RBM raised the base rate—the interest rate at which a nation’s central bank lends money to domestic banks—by 19 percent to 25 percent on December 3, 2012, apparently in an attempt to stabilise the kwacha and contain high inflation.
Year-on-year headline inflation rate rose in November 2012 to 33.3 percent from 30.6 percent in the preceding month, one of the highest rates Malawi has attained in the last decade.
RBM spokesperson Ralph Tseka on Saturday justified the steady bank rate, saying inflationary pressure has marginally eased and those statistics mean money supply growth is decreasing.
“This [maintaining the bank rate] signals that the recent bank rate adjustment has its mechanisms still working on the market and the projected annual average inflation rate of 21.3 percent is in tandem with our figures as well,” said Tseka.
RBM had earlier argued that the hike in the bank rate—thrice within a space of six months—was intended to contain the runaway inflation.
But the central bank has said in the minutes that the decision to maintain the bank rate was based on the fact that the November 2012 inflation figure was in line with the projections made during the previous MPC meeting and the need to allow more time for the recent monetary tightening to work through the system.
RBM maintains that at an average of 31.4 percent, prime lending rates among most commercial banks ‘were marginally negative.’
Already at 25 percent, the cost of borrowing by commercial banks from RBM is considered by many as one of the highest in the region.
Currently, most businesses continue to complain of a hostile economic environment unleashed by the 50 percent devaluation and the subsequent floatation of the kwacha in May last year, among other key economic reforms by the Joyce Banda administration.
