Commercial banks have lowered the reference rate for June to 20.4 percent from 20.6 percent in May.
This extends a downward trend that has gathered pace in recent months as liquidity conditions improve and government borrowing remains subdued.
The reference rate is the benchmark lending rate that banks use when pricing loans.
Although actual lending rates are usually several percentage points above the reference rate, movements in the benchmark influence the cost of credit for households and businesses.
The latest adjustment means the benchmark rate has fallen by almost 5 percentage points since January, when it stood at 25.2 percent.
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It dropped to 24.7 percent in February, 22.4 percent in March, 20.8 percent in April, 20.6 percent in May and, now, 20.4 percent in June.
The decline follows the Reserve Bank of Malawi’s decision, in March, to cut the policy rate from 26 percent to 24 percent amid easing inflationary pressures.
Financial Market Dealers Association Publicity Secretary Rupert Nkhono attributed the latest reduction to excess liquidity in the financial system.
He said the government’s decision to limit borrowing and secure funds at lower yields than in previous years had also helped push rates down.
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“The drop is due to higher levels of liquidity in the market. Banks and other financial institutions are holding a lot of cash and short-term Treasury bills.
“As such, excess cash and liquidity, plus conservative government borrowing, are the main driving factors,” Nkhono said.
Nkhono said the outlook would depend on fiscal and monetary policy direction, inflation trends, fuel prices, food costs and foreign exchange stability.
Economist Marvin Banda described the latest reduction as marginal and unlikely to significantly change borrowing patterns.
He said most borrowers would hardly notice any difference in monthly repayments because commercial lending rates remained among the highest in the region.
However, Banda said the move sent an important signal that inflationary pressures may be easing and that the cycle of continuous interest rate increases could be ending.
“The reduction is too infinitesimal to materially change borrowing costs and patterns for households, farmers or businesses.
“The encouraging aspect is the signal being sent. If inflation continues to decline and macroeconomic stability improves, this could be the continuation of a gradual easing cycle,” Banda said.
Banda cautioned that Malawi’s key economic challenges remained foreign exchange shortages, high public debt, energy constraints, low productivity and weak export earnings, arguing that sustainable growth would require broader economic reforms beyond lower lending benchmarks.
