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Banks maintain reference rate

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Lyness Nkungula

Reference rate—a benchmark for other banking rates—has been maintained at 12.20 percent in July, thanks to lower government domestic borrowing registered last month.

Experts say this could see cost of borrowing continuing to ease.

According to statements from some commercial banks in the country, the rate has been maintained effective July 5 2021.

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Bankers Association of Malawi (Bam) Chief Executive Officer Lyness Nkungula said there are a number of reasons the rate has been maintained including government borrowing.

“The interbank borrowing was relatively on the horizon due to sufficient liquidity within the banks and government borrowing in the preceding month was low,” Nkungula said.

Government domestic borrowing has a direct impact on banking rates as movement to either direction affects the cost of borrowing.

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Economics Professor from the University of Malawi Ben Kalua said the government should tame its appetite for domestic borrowing if the cost of borrowing were to continue going down.

“Government’s reduction in borrowing will moderate the interest rate regime for commercial banks because every bank would want to lend to government; therefore the higher the demand, the higher the rates, vice versa,” he said.

The reference rate has been relatively stable since the Reserve Bank of Malawi slashed policy rate to 12 percent in November last year.

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