The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and the Bankers Association of Malawi (Bam) have predicted a harsh macroeconomic environment for businesses in the short term, warranting sustained increases in policy rate.
Last month, the Reserve Bank of Malawi raised the policy rate by two percentage points to 14 percent, citing the rise in inflation rate, which was recorded at 19.1 percent.
The central bank authorities indicated that impacts of the Covid pandemic were still taking a tow on the local economy.
In a recent interview, Bam President, who is also Chief Executive Officer for National Bank of Malawi, McFussy Kawawa said the situation is difficult for banks as it results in negative savings if the policy and deposit rates are compared against inflation.
“If we hold everything constant, the moment the policy rate increases, it means the resultant reference rate will increase and, at the same risk premium, it means any borrower’s interest rate will increase,” Kawawa said.
MCCCI Chief Executive Officer Chancellor Kafelapanjira said the development will affect businesses, especially small and medium enterprises who cannot manage to negotiate interest rates.
“Monetary authorities should put measures that will grow the economy and not squeeze businesses further as they are already struggling.
“We need government to pick sectors that will be producing what Malawians need; then, it should subsidise interest rates for those sectors because we need companies that should be producing what we consume so that, in the medium term, we reduce the pressure on the Kwacha,” Kaferapanjira said.
Economists Millward Tobias of the Centre for Research and Consultancy and Betchani Tchereni of Malawi University of Business and Applied Sciences, last week, expressed similar sentiments that the policy rate is expected to go up above 20 percent.
The RBM Monetary Policy Committee indicated that if the impacts continue, it will initiate necessary cushioning measures which may include raising the policy rate further.
Russia’s invasion of Ukraine has had another major impact on the economy, disrupting importation of various commodities that triggered price increases on the local market.
The situation has also been exacerbated by the authorities’ recent stance to devalue the local currency by 25 percent followed by an average 34 percent increase in fuel prices.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.