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Reference rate up 0.2 percentage points

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Ben Kalua

Commercial banks in the country have revised upwards reference rate for September to 13.6 percent from 13.4 percent.

A reference rate is an interest rate benchmark used to set other interest rates.

This is the first time the rate has increased since June this year when rate moved from 13.3 percent to 13.4 percent.

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The rate is determined through an average of the Lombard Rate, the Interbank Rate, commercial bank Savings rate and Treasury Bills.

Statements published by various commercial banks recently, indicate that the new rate has been effected from Thursday.

Bankers Association of Malawi (BAM) Chief Executive Officer, Lyness Nkungula, attributed the rise to a corresponding increase in Treasury Bill rates.

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“The reference rate upward movement has been triggered due to the rise in treasury bill rates because of government borrowing,” Nkungula said.

Chancellor College economics professor, Ben Kalua, said the development has been perpetuated by an increased appetite for borrowing by the government that has triggered Treasury Bill rate increases.

He added that the trend is expected to continue in the medium term as the government will continue borrowing to ease economic impacts of the Covid-19 pandemic.

“We are going to see more pressure because of Covid-19 pandemic so government will need to borrow more and the Treasury Bill rate will go up so when this rate goes up, all other rates must go up as well,” Kalua said.

Information available on RBM website indicates that during a Treasury Bills auction which occurred on August 18 2020, the government raised K3.6 billion.

The amount was raised on 364 days tenor at a 13.8 percent rate.

At the beginning of June the government was offering a 12.9 percent rate for treasury bills under the 364 days tenor.

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