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Policy rate maintained

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The cost of borrowing is expected to continue easing following the decision by the Reserve Bank of Malawi (RBM) Monitory Policy Committee (MPC) to maintain the policy rate at 12 percent.

The policy rate is the rate at which commercial banks borrow money from the central bank and it has a bearing on the interests that they charge on borrowers.

The rate was dropped by 150 basis points early November last year during MPC’s last meeting from 13.5 percent.

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According to a statement from the committee, the decision to maintain the rate has been arrived at after noting stability of the inflation rate last year and to support the economic recovery from the shocks of the Covid pandemic.

“This decision will allow the impact of the November 2020 policy rate reduction to transmit and permeate through the economy. This position is also meant to support economic recovery,” the statement reads.

The committee, which is chaired by RBM Governor Wilson Banda, has also maintained the Liquidity Reserve Requirement ratio on domestic and foreign deposits at 3.75 percent and the Lombard rate at 20 basis points above the Policy rate.

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Commenting on the development, economist at The Polytechnic Betchani Tcheleni said maintaining the rate gives confidence that the economy, which is thought to be in bad shape, is still afloat.

Tcheleni added that the decision may have also been triggered by efforts to continue having the economy in shape amid economic uncertainties triggered by the Covid pandemic.

“The statement shows that given a chance, they would have loved to increase a bit the policy rate but, because we are at a point where we should be thinking about recovery more, we need to continue being in an expansionary mood,” Tcheleni explained.

MPC has also maintained the average inflation rate projection for 2021 at 7.8 percent, which is 1.2 percentage points lower than last year’s average headline inflation, which stood at 8.6 percent.

Meanwhile, Bankers Association of Malawi Chief Executive Officer Lyness Nkungula has welcomed RBM’s decision to maintain the rate, describing it as conducive business environment.

“The decision is well founded and prudent in that it has taken into account risks facing headline inflation in the short to medium term. The maintenance of low interest rates is good for the economy especially in the prevailing conditions of the Covid second wave. Businesses need more breathing space from many angles,” Nkungula said.

The inflation rate is expected to stabilise in the country at the back of a good harvest emanating from the Affordable Input Programme and good rainfall pattern.

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