Commercial banks have slashed reference to 12.1 percent starting Wednesday from 12.3 percent in December. This is according to a published statement by the commercial banks.
A reference rate is an interest rate benchmark used to set other interest rates. It is a weighted average of the policy rate, interbank rate, commercial banks savings rates and government Treasury Bill rates.
Some of the commercial banks that issued such statements include FDH Bank, National Bank, CDH Investment Bank, Standard Bank and My Bucks Banking Corporation.
This is the second drop in the rate since the Reserve Bank of Malawi (RBM) slashed the policy rate by 150 basis points to 12 percent from 13.5 percent.
Bankers Association of Malawi Chief Executive Officer Lyness Nkungula attributed the cut to the recent policy rate reduction by RBM which has resulted to a reduction in interbank borrowing rate.
“With the reduction of the policy rate by the monitory policy committee of RBM, it has resulted in banks being liquid now than before, hence the reduction in overnight interbank borrowing rate,” Nkungula said.
Economics Association of Malawi President Lauryn Nyasulu said the move would translate to reduced cost of borrowing.
“The cost that borrowers bear will be less than it was in the past; so, we should be slowly getting closer to the intended purpose where the intention for adjusting the policy rate, among others, was to stimulate the economy by ensuring that the cost of capital goes down,” Nyasulu said.
She added that the banks were taking a phased approach because some determinants of the reference rate such as Treasury Bills rates had not been reduced despite the policy rate cut.
Chancellor College-based economist Lucius Cassim added the development is timely, considering the slow-down in economic activity due to Covid-19 and warranted considering recent inflation trends.
However, The Polytechnic-based economist Betchani Tcheleni said the slash is very minimal to have an impact.
“The reduction is very small so a little benefit can be felt by big borrowers such as corporations and investors; otherwise, if one borrows small money, they may not see a significant change,” Tcheleni said.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
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