The Reserve Bank of Malawi (RBM) has announced a cut in the policy rate, the official rate of interests used to signal monetary policy stance, from 27 to 24 percent.
RBM Governor, Charles Chuka, told journalists in Blantyre, Thursday, that the Central Bank’s Monitory Policy Committee (MPC) resolved to cut the rate by three percentage points owing to the downward spiral in inflation in the past three months.
Since August, Malawi’s year on year headline inflation rate continued to decline with October rate down to 20.1 percent.
Chuka then said the central bank expects positive and timely reaction from commercial banks to also drop their interest rates if benefits of the decision are to trickle down to local borrowers.
“Things appear to be moving and if we are to maintain at the current pace as a country, we may change the cycle of inflation and improve further. Now there is light at the end of the tunnel and we are sure that the development will benefit the economy,” Chuka said.
Chuka then expressed optimism that the year on year inflation would continue to slow down owing to improved macroeconomic fundamentals while saying outlook for the country’s exchange rate remains positive.
He, however, cautioned players against what he rated as laxity saying there was a need to still pull up socks if the system is to maintain the grip.
“It is important that we be cautious in the months ahead of us. The factor unknown now is whether the exchange rate would behave better than it did last year depending on liquidity condition,” Chuka said.
Economic commentator, Nelson Mkandawire, described the move as overdue.
“Obviously there will be some jubilation in the private sector that perhaps the banking community will also follow suit. They [commercial banks] may react positively by reducing the borrowing rate,” Mkandawire said.
According to Mkandawire, foreign investors have been enjoying doing business in Malawi because they borrow offshore where the cost is much less and while putting pressure on local businesses to inject more capital.
“We hope this is a turning point where local businesses will equally reap the most from their investments,” he said.
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