Former Reserve Bank of Malawi (RBM) governor Dalitso Kabambe has described the country’s 24 percent policy rate as cosmetic and that it does not tally with what is on the ground.
Kabambe argues with such a rate, the economy risks collapsing.
He was speaking in a Times Exclusive International with Brain Banda, which aired on Times Television Saturday evening.
Kabambe said even though inflation rate is just one of the feeders into the policy rate calculations, it does not make sense to have the rate nearing 30 percent while the policy rate is at 24 percent.
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He gave an example of the past such as when Mathews Chikaonda was RBM governor and he raised the policy rate to 45 percent to squeeze the circulation of currency and grab inflation rate “by the neck”.
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“Immediately the Tonse Alliance came to power, with the huge borrowing they made, they should have raised the policy rate very high and while now it seems too late, they can still adjust it to keep the economy in shape.
“Otherwise, this is the second cancer eating the economy and it is just a matter of time before the economy collapses,” Kabambe said.
RBM under the leadership of Wilson Banda has been slowly shifting the policy rate and it now hangs at 24 percent which was announced during the April 2023 Monetary Policy Committee meeting.
In a report released after the meeting, RBM indicated that the tight might policy rate may linger on the back of continued downside risks on the economy, especially inflation rate.
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Speaking during a National Bank of Malawi stakeholder engagement recently, the bank’s Chief Executive Officer, who also serves Bankers Association of Malawi president, McFussy Kawawa, said while a lot of people think tight monetary policy is good for the banking sector, the opposite is true.
He said most people think it is beneficial to have a tight policy rate because banks raise interest rates and make huge profits from borrowers.
“[But, actually], raising the policy rate, which results in high interest rates, means that a lot of potential borrowers shun borrowing because it becomes expensive, which eventually affects the profitability of banks,” Kawawa said.
