The Reserve Bank of Malawi (RBM) has for the second time resolved to maintain the bank rate at 25 percent barely three months after the central bank hiked the policy rate from 21 percent to 25 percent last December.
This means that commercial banks in the country’s financial system will continue to borrow money from RBM at 25 percent to patch up their liquidity levels for lending out to their respective clientele.
However, one senior banker on Wednesday confided in The Nation that the country is currently experiencing a liquidity squeeze, with treasury bills yields hitting 45 percent.
Said the banker: “RBM is heavily borrowing from the market. In fact, [commercial] banks are contemplating to adjust rates upwards, including lending rates.”
RBM’s decision to maintain the indicative cost of borrowing follows a resolution of the Monetary Policy Committee (MPC) of RBM—chaired by central bank governor Charles Chuka—which convened on Tuesday to review recent economic developments.
“Based on regular economic and monetary analyses, the MPC decided to keep the policy rate and the Liquidity Reserve Requirement (LRR) unchanged at 25.0 percent and 15.5 percent, respectively,” reads the latest minutes of the second MPC for the year 2013.
LRR is a fraction of depositors’ money which commercial banks are obligated to deposit with the central bank.
RBM raised the base rate by 19 percent to 25 percent on December 3 2012, seemingly in an attempt to stabilise the kwacha and contain high inflation.
However, despite tight monetary policy stance taken by RBM, headline inflation rate continues to accelerate, edging up to 35.1 percent in January from 34.6 percent recorded in December, 2013.
Commenting on the monetary developments, RBM says aligned with the monetary expansion, the liquidity situation improved in the first two months of 2013 as evidenced by excess reserves doubling to about K8 billion in February 2013.