The cost of borrowing is expected to continue easing as reference rate-a benchmark for other rates-has been lowered further to 11.90 percent, set below the policy rate.
The policy rate-a rate at which commercial banks borrow from the central bank as lender of last resort-was last slashed from 13.5 percent to 12 percent in November 2020 and was maintained by the central bank’s Monetary Policy Committee in January 2021.
According to statements published by some commercial banks, the new reference rate is effective March 4, 2021.
Bankers Association of Malawi (BAM) Chief Executive Officer Lyness Nkungula attributed to drop stability in other macroeconomic variables.
She cited the November slash in policy rate as one of the key factors, saying it help pushing up liquid levels in commercial banks.
She also said consequentially, the move has led to continued drop in overnight bank borrowing rates.
“The overnight bank borrowing rate is one of the determining factors in calculating the reference rate,” she said.
Commenting in a separate interview, Polytechnic-based economist Betchani Tcheleni said partly, the drop could be attributed to stability in headline inflation.
He added that the banks have challenged investors to borrow from them and invest towards growth of businesses and the economy.
“If many investors can borrow and invest or expand their companies, it means they will create employment, the economy will grow and reduce poverty, in other ways, the banks are trying to foster development of the country,” he said.
This is the fourth time the reference rate drops since the RBM slashed the policy rate by 150 basis points from 13.5 percent to 12 percent in November 2020.
The trend entails access to capital is becoming cheaper by day.
But some analysts have been arguing that impact of the movements in the reference rate could not be felt promptly as the country continue to face risks associated with the Covid.
RBM recently said Malawi’s economic growth prospects for 2021 remain uncertain, mainly due to the second wave of Covid.
Capital Hill had predicted that the local economy could swell by 4.5 percent in 2020, up from 1.2 percent in 2020.
The Economist Intelligence Unit has revised downwards its projection for the Malawi’s economic growth from 4.7 percent to 2.1 percent in 2021.
According to Nico Asset Managers 2020 Economic Report, the revision has been necessitated in anticipation of the impact that coronavirus will have on the economy.
Economies continue to stagger on their knees at the knock of the pandemic with the International Monitory Fund and World Bank indicating that the growth prospects looks blurred.
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.