By Benadetta Chiwanda Mia:
Commercial banks have adjusted upwards the reference rate— the benchmark for other rates such as interest rate—to 25.5 percent in November, published statements for some banks show.
This could lead to a possible rise in interest rates and exert extra pressure on people and institutions borrowing money from financial institutions.
Prior to the adjustment, there have been slight increases from 25 percent in May to 25.1 percent in June.
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In separate statements published on Tuesday for instance, Malawi Stock Exchange-listed National Bank of Malawi and NBS Bank announced a slight upward adjustment of their reference rate from 25.4 percent effective November 5.
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Commenting, Financial Dealers Association of Malawi Lesilie Fatch said that the November adjustments are influenced by a rise in the overall Treasury bill rate— from 23.27 percent in September to 24.16 percent in October.
“This comes despite a marginal drop in the overnight interbank rate from 24.23 percent to 24.20 percent,” Fatch said.
Economic expert Marvin Banda said the reference rate serves as a benchmark, significantly affecting borrowing costs for businesses and individuals within the credit market.
“These facilities incur monthly charges, which can impact borrowers’ ability to consume. The upward adjustment will also affect newly contracted loans,” Banda stated.
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Banda observed that the 0.10 percent increase is not expected to have a notably adverse effect on borrowing trends for consumers and businesses, although it does represent an increase.
However, he cautioned that the reference rate may rise further if macroeconomic fundamentals continue to be unfavorable for economic growth and banking operations.
According to Banda, these increases are perceived as anticipatory, even as the lag effects of previous policy changes continue to ripple through the system.
“If bank profitability is projected to decline, banks may respond by raising lending rates. It’s important to remember that real interest rates remain negative, compelling banks to adopt creative strategies to counter inflationary pressures in the economy,” he concluded.
Banda- banks adopt creative strategies to counter inflationary pressures in the economy.
