The Investing public will continue to feel the pinch of rising cost of borrowing as commercial banks have adjusted their reference rate by 0.3 percentage points to 25.4 percent.
Published statements by commercial banks this week show that the new rate is effective Wednesday.
In a response to a WhatsApp message, Bankers Association of Malawi President Phillip Madinga said the development is only a reflection of other lending or borrowing parameters.
“The reference rate is formulae-driven. So, if any of the variables changes or its calculation changes, it also changes. In this case, the interbank rate has been on the rise,” Madinga said.
In an interview yesterday, Financial Market Dealers Association (Fimda) President Leslie Fatch said the rate reflects current market trends.
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“The overnight rate and all types of bill rates have gone up. So, fundamentally, it is the same reasons that underlying rates that make up the reference rate have gone up, hence the increase,” Fatch said.
This is the third time commercial banks have increased their reference rate this year from 24.9 percent between January and April to 25 percent in May and 25.1 percent in June.
An increase in the reference rate leads to higher interest rates for consumers and businesses, making borrowing expensive.
This is feared to have a bearing on economic activity.
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In an earlier interview, Malawi Confederation of Chambers of Commerce and Industry President Wisely Phiri said the high cost of borrowing has led to a significant decline in growth of private sector credit.
“These costs will be passed to borrowers through increased interest rates. Banks have already adjusted their reference rate, further increasing the cost of borrowing and impacting on the levels of lending activities to the private sector.
“Businesses cannot expand without reasonably priced credit and this decline in private sector credit will lead to a decline in the level of investments which ultimately is costly to the economy in the medium to long term,” Phiri said.
During its recent Monetary Policy Committee (MPC) meeting, the Reserve Bank of Malawi maintained a policy rate at 26 percent.
It raised Liquidity Reserve Ratio for domestic currency deposits by 100 basis points to 8.75 percent.
“In making this decision, the MPC took into account the recent deceleration in inflation and its continued downward projected trend in the near term. However, the committee noted that there are upside risks to the inflation outlook, including the projected lower crop harvest, high money supply growth and higher global oil prices,” an RBM publish statement reads.
