Industry yet to reap from policy rate cut


The recent reduction in policy rate by the Reserve Bank of Malawi (RBM) is yet to register significant impact on the private sector as credit flow remains subdued.

On November 6 2020, the central bank reduced the policy rate—the rate at which commercial banks borrow from RBM as lender of last resort—by 150 basis points to 12.0 percent.

This was after the Monitory Policy Committee of the bank had decided to maintain the rate at 13.5 percent throughout the year.


In its Monitory Policy Report for November 2020, RBM indicates that private sector credit continues to grow, although at a slower rate than 2019 due to the impact of the Covid-19 pandemic.

“The annual growth rate of private sector credit edged up to 16.4 percent in September 2020 from 12.8 percent in June 2020 but remained lower than 17.7 percent recorded in September 2019,” the report reads.

In an interview Tuesday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Director of Business Environment and Policy Advocacy Madalitso Kazembe said impact of the cut was yet to be felt.


“You would expect commercial banks to respond positively to the policy rate reduction and that translating to positive feedback from the private sector but, all along, it has been sticky for the commercial banks to do so.

“The survival of the private sector in the year was mainly on the back of interventions by the Reserve Bank [of Malawi] especially moratoriums on loans and interests but also reduction of the Liquidity Reserve Requirement but also the Lombard rate so all that was positive developments for the private sector,” Kazembe said.

Centre for Economic Thinking and Development Executive Director Frank Kamanga said monetary authorities wanted to focus on supporting economic recovery by ensuring available liquidity at low cost, hence recent policy rate cuts.

“RBM is following what we call forward-looking monetary policy. Normally, they no longer practise what we call retrospective or reactionary-monetary policy. In forward looking monetary policy, they forecast in advance what the future inflation is going to be.

“Based on the forecast, they make a decision on policy rate. That is why you will note that they reduced the policy rate even before it was announced that inflation rate would go down,” Kamanga said.

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