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Cost of borrowing inches up in May

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Mbane Ngwira

Borrowers should brace to pay a little bit more in interest on their loans following a decision by commercial banks to induce a marginal increase in reference rates.

In published statements Wednesday various commercial banks indicated that they had increased the reference rate from 13.2 percent in April to 13.3 percent in May.

The banks include National Bank of Malawi, Ecobank, NBS Bank and FDH Bank.

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The upward movement in the reference rate comes barely a month after the Monetary Policy Committee of the Reserve Bank of Malawi (RBM) maintained the Policy Rate at 13.5 percent.

RBM Director of Communication and Protocol, Mbane Ngwira, Wednesday said the commercial banks are better placed to speak on the upward adjustment.

Bankers Association of Malawi (Bam) Chief Executive Officer, Violet Santhe, was not immediately available for comment.

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Last year, RBM unveiled a new formula for determining reference rate or base lending rate for commercial banks.

Previously, commercial banks base lending rates were unified and were set at Lombard rate which was 0.4 percentage points above the policy rate or bank rate.

The new formula saw RBM including three other rates in the calculation of the base lending rates for banks.

The move resulted in the weight on the Lombard Rate being reduced from 100 percent to 59 percent.

“The remaining 41 percent of the weight has been apportioned as follows: 91- day Treasury bill [T-bills] rate [10 percent], interbank bank market rate [30 percent] and savings rates [one percent],” RBM Governor Dalitso Kabambe said in a circular dated May 7 2019 addressed to chief executive officers of all commercial banks.

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