The Bankers Association of Malawi (Bam), an umbrella body for commercial banks in the country, has said ease in pressure on interest rates in the short to medium terms would largely depend on downward adjustment in the policy rate—the rate which banks use when borrowing from the central bank as lender of last resort.
The Reserve Bank of Malawi (RBM) has raised the policy rate twice within the year to 24 percent, and commercial banks reciprocated by increasing their interest rates.
Responding to our questionnaire, Bam Chief Executive Officer Lyness Nkungula said so long as the policy rate keeps moving upwards, the interest rate will follow suit.
She said, for example, with the latest increase in policy rate from 22 percent to 24 percent, the Lombard rate—the rate at which commercial banks borrow from the central bank—has moved up to 24.2 percent from 22.2 percent.
“In addition, banks rely on institutional depositors and they respond to these changes as well. Cost of funds definitely will go up and banks have to cushion this by an increase in rates for lending products,” Nkungula said.
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Market analyst Bond Mtembezeka projected a continued rise in the interest rates as the operating environment remained volatile.
“Since interest rates respond to policy rates which respond to inflation, consumers will have to wait longer for reduced interest rates because there is no sign that inflation will start reducing soon,” Mtembezeka said.
In its latest Monetary Policy report, RBM hinted at maintaining a tight monetary policy stance.
“The committee will continue to vigilantly monitor the economic developments and stand ready to take appropriate action in their quest to support the economic recovery process,” the report reads.
