Commercial banks have started giving notices that they will lower interest rates starting from today but the business community and consumer bodies are taking the news with a pinch of salt describing the move as a case of too little too late.
Last week, the Monetary Policy Committee of the Reserve bank of Malawi (RBM) met and made a decision to reduce the policy rate by three percentage points to 24 percent from 27 percent to contain inflation and protect reserves.
Both National Bank of Malawi and Standard Bank have followed up RBM decision with cuts in interest rates effective today.
The two banks have since announced a uniform base lending rate of 32 percent in separate statements released Wednesday. The base rate is the minimum interest rate on which financial institutions base the rates they use for lending.
The adjustment means Standard Bank customers will now pay three percent less
on their loans from 35 percent before the adjustment. Head of Marketing at the bank, Thoko Unyolo, said the adjustment will offer relief to borrowers.
But the business community and consumer advocates think the move from financial service players is too little, too late.
Business man and former President of the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Newton Kambala, said it is unlikely that the new rates will rescue the private sector coming at a time when the business environment already forced many businesses to either shut down or cut down operations.
Kambala said for the move to be significant, banks must soften loan conditions, including removing the current requirement where most commercial banks are demanding cash cover as security for a performance guarantee.
“It’s too late. Businesses are on their knees and many have closed down. As we speak, banks are not accepting property as security for a performance guarantee preferring cash cover. Such conditions only squeeze the business sector further,” he said.
Kambala said it would be difficult to turn the economy around if the business environment continues to be prohibitive to business prosperity.
Consumers Association of Malawi Executive Director, John Kapito, said base lending rates of 32 percent are still too high for the average person.
Kapito said with current economic trends, it is only figures below 20 percent which would make a difference in people’s lives.
“The news is not exciting as it is not the figure we are looking for. We cannot celebrate because the situation is still tough for most people,” he said.
While applauding commercial banks for reducing the interest rates, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) said there is still need for a tight grip on government borrowing in the domestic market so that interest rates can come down even further.
MCCCI President, Karl Chokotho, said reduced government borrowing would create a surplus to be made available to the private sector at reduced rates.
“We want to see a deliberate drive in supporting the manufacturing, agro-processing, mining, tourism and other productive sectors. It is critical for our country that we drive a growth agenda,” he said.
Malawi is one of the countries where the cost of servicing a loan is among the highest in the region and world. Before the policy rate adjustment, commercial banks were charging interests of around 40 percent.