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First half rates’ benchmark averages 12 percent

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Cosmas Chingwe

Reference rate—a benchmark for other rates— averaged 12.0 percent in the first half of 2021, a rate market analysts say is ideal to spar economic activities.

However, other factors such as pangs of the Covid pandemic weighed heavily on the growth prospects and the operating environment as most sectors of the economy felt the pinch.

According to figures from the Reserve Bank of Malawi (RBM), between January and June 2021, the rate remained stable with the highest recorded at 12.20 percent in June while the lowest was seen at 11.90 percent in March.

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The average reference rate is at par with policy rate—rate at which banks borrow from the central bank as lender of last resort—which is one of the key variables which affects the reference rate.

In the past months, RBM has been maintaining the policy rate and the Liquidity Reserve Requirement (LRR) ratio on domestic and foreign deposits as well as the Lombard rate.

Local financial market analyst Thokozani Saulosi said the stability should propel activity on the local market as most businesses would easily access loans from commercial banks.

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Saulosi added that, likely, the central bank was using an expansionary monetary policy to boost economic activity by creating demand for funds due to low costs associated with it.

“This will enable the private sector to borrow to boost production and economic activity, hence seeking to attain the targeted economic growth amidst the pandemic, which has shrunk economic activity,” he said.

In a separate interview, another market expert Cosmas Chigwe said the situation was good for business and attracting investors.

“Consequently, the cost of borrowing has also remained stable. Although our borrowing rates remain high and unfriendly, they are at their lowest for a long time and one can reasonably claim we are trending in the right direction,” he added.

Malawi’s economy was not exempted from effects of the Covid pandemic as it registered a meager 0.9 percent in gross domestic product from the post Covid era projection of 1.9 percent.

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