People borrowing money from commercial banks and other financial institutions should expect tough times ahead following the decision by the Monetary Policy Committee (MPC) of the Reserve Bank of Malawi (RBM) to raise the policy rate, which is a key driver of interest rates on loans, from 14 percent to 18 percent.
This is the second time in five months for the MPC to hike the policy rate following another hike in early May from 12 to 14 percent.
As per tradition, commercial banks are expected to adjust their base lending rates upwards within the coming days in response to the policy rate hike.
RBM Governor Wilson Banda, who chairs the MPC, said in a statement yesterday that the committee, during a meeting held on October 25, also resorted to keep the Lombard rate at 20 basis points above the policy rate and the Liquidity Reserve Requirement ratio on both domestic and foreign currency denominated deposits.
Banda said the decision was deemed necessary to restore price stability, which is essential for reviving and sustaining high economic growth.
The central bank governor said in taking this decision, the MPC noted that high inflation could frustrate the country’s economic recovery process while also eroding purchasing power of households.
“In the absence of measures to contain inflation, rising prices will continue to diminish the welfare of households.
“The MPC, therefore, considered expeditious tightening of monetary policy stance as further delays could risk entrenching inflation expectations,” Banda says.