By William Kumwembe:
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has hailed the Reserve Bank of Malawi (RBM)’s move to cut its policy rate to 13.5 percent, saying this would facilitate growth of the industry.
MCCCI, an umbrella body of the private sector in the country, however, said this would depend on reaction of commercial banks and microfinance institution to the decision.
RBM on Friday announced to have slashed the policy rate — a key driver of interest rates on loans — by a 100 basis points from 14.5 percent.
The move would help making more credit available and cheaper to firms and households.
This is the second time in a space of five months for the central bank to reduce the indicative cost of money.
In January, RBM also cut the rate by 1.5 percentage points from 16 percent to 14.5 percent.
RBM, however, this time around maintained the Lombard rate at 0.4 percentage points above the policy rate, the Liquidity Reserve Requirement (LRR) on local currency deposits at 5 percent and the LRR on foreign currency 3.75 percent.
Reacting over the week end, MCCCI president, Prince Kapondamgaga, the decision is an attempt to reduce the cost of finance which is one of top most serious challenges of doing business in Malawi.
“The truth is that the cost of borrowing is structurally high and unresponsive to the actions of monetary authorities as players in the financial sector unfortunately tend to exaggerate risks associated with lending,” said Kapondamgaga.
He, however, said fate of borrowers to reap the most of the decisions is in the hands of commercial banks and other lending institutions.
He was upbeat that the financial institutions would respond positively and timely to the move.
“We only hope the financial sector will respond favorably the current monetary policy position,” Kapondamgaga said.
In an earlier interview, Consumers Association of Malawi Executive Director, John Kapito, welcomed the step, rating it as “very encouraging”.
He said for consumers, low interest rates mean lower prices of goods and services among other benefits.
“With continued reduction of interest, the market expects to see an increase in local investments that would trigger employment and increased disposable incomes,” Kapito said.
The policy rate cut is attributed to positive macroeconomic outlook for 2019 and beyond, envisaged during the first 2019 Monetary Policy Committee meeting.
It came as headline inflation slowed down to an average of 8.7 percent during the first quarter of 2019 from 0.9 percent recorded during the previous quarter on account of a decline in non-food inflation which dropped by 5.8 percent from 8.9 percent.