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Banks yet to react to policy rate slash

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Malawi’s commercial banks were yet to start pulling down interest rates over 80 hours after the Reserve Bank of Malawi (RBM) reduced the policy rate.

RBM Governor Charles Chuka on Thursday announced the slash of the policy rate by three percentage points from 27 to 24 percent following improvements in inflation buoyed by improved food availability.

But as of Sunday, the banks were yet to take their positions on the matter.

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A Blantyre-based economist who opted for anonymity told Times on Sunday that the banks were waiting for the so-called ‘market leaders’ to take position on the matter before the rest could follow.

“They are playing a wait-and-see game to see where the large banks will position their base lending rates following the policy rate slash,” he said.

Consumers Association of Malawi (Cama) Executive Director John Kapito wondered why banks move with speed when it comes to hiking rates but do not reciprocate with similar haste to reduce lending rates.

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“Often time when the central bank hikes the policy rate, the banks don’t take long to react by hiking their base lending rates. You will find that within 24 hours they react. But when it comes to reducing the lending rates, it becomes a problem,” said Kapito.

The last time the policy rate was at 25 percent, banks’ base lending rates averaged 33.5 percent.

All things being equal, Malawians should expect the commercial banks to peg their base lending rates around 32 percent.

In the past three months, headline inflation has been on a downward spiral as October 2016 inflation stood at 20.1 percent, down from 21.1 percent on September.

The current rate is down from 24.7 percent recorded during the corresponding period of last year.

The ease is attributed to a relative improvement in food availability and prices in the recent past.

The inflation rate is, however, expected to close 2016 at 22.6 percent, with possibility of a further surge to 22.7 percent in February 2017.

However, Chuka told journalists that the inflation may ease to 18.6 percent by mid next year.

The projection is 2.1 percentage points higher than the 16 percent earlier projected June 2017 inflation.

“Inflation projections and expectations are fairly contained. Therefore, year on year inflation should continue to slow down,” said Chuka.

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