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Banks yet to react to policy rate cut

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Most commercial banks are yet to react to the policy rate cut effected by the Reserve Bank of Malawi (RBM) last Wednesday.
The policy rate is now at 16 percent from 18 percent.
At a press briefing held in the administrative capital, Lilongwe, last week, RBM Governor, Dalitso Kabambe, attributed the policy move to recent trends on inflation statistics and the desire to consolidate economic gains.
Kabambe was optimistic that commercial banks will follow up the decision with adjustments to their lending rates.
But as of Monday this week, only Malawi Stock Exchange listed National Bank of Malawi (NBM) had reacted to the rate cut slashing its lending rate to 23 percent from 25 percent.
Most banks were not fully operational on Monday and Tuesday when the country joined the world to observe Christmas.
Dean of Social Sciences at the Catholic University, Gilbert Kachamba, said in an interview that the festivities may have influenced the delay for commercial banks to effect the rate cuts.
“Banks may start to react to the policy rate cut immediately after the festive season. Based on past trends, we cannot rule out a possibility for most of the banks to equally slash their lending rates. They may have delayed as they are not in full operation during the festive season,” Kachamba said.
In November 2016, RBM slashed the policy rate from 27 to 24 percent. Another policy rate cut of 200 basis points was affected by RBM in March 2017 from 24 percent to 22 percent before cutting it further to 18 percent in July 2017.
In October, the central bank maintained the rate at 18 percent while monitoring “with keen interest” the market trends in view of the falling inflation, which hit single digit in August to 9.3 percent.
With inflation continuing to decelerate, now at 7.7 percent, another rate cut was inevitable according to some economists.

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