‘Lending rates to choke businesses’

Lilongwe-based economist says the increase in the policy rate of interest and subsequent hikes in lending rates by commercial banks have sent shockwaves into the business community.

Former Economics Association of Malawi (Ecama) executive director, Nelson Mkandawire, said the high cost of borrowing will further suffocate local businesses.

“Obviously, once base rates have been raised, it becomes very hard for commercial banks to stay put because it affects their income as well; their profits are eaten up by that. So they would have to push that to the customer. Obviously we would expect other banks to follow suit,” said Mkandawire.

He said the increase in lending rates is even tougher now as it comes at a time the economy is suffering from other shocks such as devaluation and inflation.

“Businesses will not grow as we anticipated,” said Mkandawire.

Commercial banks have this week started reacting to last Wednesday’s hike in the policy rate from 25 to 27 percent by the Reserve Bank of Malawi (RBM).

First to react was National Bank of Malawi (NBM) which on Tuesday announced in a statement an adjustment in its base lending rate from 32 percent to 34 percent per annum.

RBM on Wednesday last week announced an increase in the policy interest rate from 25 to 27 percent.

RBM governor Charles Chuka has justified the central bank’s decision to hike the cost of borrowing, saying the economy is passing through tough times that need sacrifices.