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Reserve Bank of Malawi cuts rate to 13.5 %

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By William Kumwembe:

John Kapito

Borrowers from commercial banks and other micro-finance institutions should heave a sigh of relief following a slash in policy rate — a key driver of interest rates on loans— by the Reserve Bank of Malawi (RBM).

At the end of the second Monetary Policy Committee (MPC) meeting Friday, MPC Chairperson and RBM Governor Dalitso Kabambe announced the policy rate slash from 14.5 to 13.5 percent.

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The move would help make more credit available and cheaper to firms and households.

This is the second time in a space of five months for the central bank to reduce the indicative cost of money.

In January, RBM also cut the rate by 1.5 percentage points from 16 percent to 14.5 percent.

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RBM, however, this time around, maintained the Lombard rate at 0.4 percentage points above the policy rate, the Liquidity Reserve Requirement (LRR) on local currency deposits at five percent and the LRR on foreign currency 3.75 percent.

Kabambe told journalists at a news conference that the decision has been arrived at considering macroeconomic outlook in 2019 envisaged during the first 2019 MPC meeting.

This comes as headline inflation slowed down to an average of 8.7 percent during the first quarter of 2019 from 0.9 percent recorded during the previous quarter on account of a decline in non-food inflation which dropped by 5.8 percent from 8.9 percent.

The exchange rate and foreign exchange position also remained broadly stable.

“We passed the turbulent times, now the clouds are relatively clear,” Kabambe said.

He expressed optimism that commercial banks would positively react to the move saying this would bring about an immediate relief to borrowers.

Reacting to the move, Economics Association of Malawi (Ecama) president Chiku Kalilombe said this was expected.

“However, such is meaningful when it results in affordability of credit, thus, growth in that sector which is intended to increase real economic activity in terms of business,” Kalilombe said.

He said, apart adopting the right macroeconomic policy approach, other factors also need to be congruent to this if “we are to see this positively impact on the economy”.

He urged authorities to consider resolving supply side challenges such as unreliable and unpredictable power supply, low and volatile agricultural productivity and weak institutions that cannot adequately support and sustain economic growth.

Consumers Association of Malawi Executive Director John Kapito also welcomed the step, rating it as very encouraging.

He said, for consumers, low interest rates means lower prices of goods and services, among other benefits, and, with continued reduction of interest, the market expects to see an increase in local investments that would trigger employment and increased disposable incomes.

Dean of Social Sciences at Catholic University Gilbert Kachamba said, as the country has been experiencing macroeconomic stability in the recent past, it is justifiable to have a downward revision of the policy rate.

Another economic commentator Sam Chiwaula said, as the stance is aimed at reducing the lending rate by commercial banks, it would increase consumer spending and attract an upsurge in investment spending.

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