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Reserve Bank of Malawi still confident on rate cut impact

Onilie Nkuna


The Reserve Bank of Malawi (RBM) remains upbeat that the impact of the recent policy rate cut would be felt by the industry and other individual borrowers in the short to medium terms.

RBM spokesperson Onilie Nkuna was reacting to concerns by some industry players that the policy rate slash was yet to register significant impact on the private sector as credit flow remained subdued.

On November 6 2020, the central bank reduced the policy rate—the rate at which commercial banks borrow from RBM as lender of last resort—by 150 basis points to 12.0 percent.

Responding to an emailed questionnaire, Nkuna said although inflation was relatively stable during 2020, there were emerging upside risks, hence the policy stance that was undertaken.

“Generally, policy rate changes do not have a contemporaneous impact on the desired macros or economy per se. The transmission period for such policy changes usually ranges from six months to 1.5 years; as such, we expect to see that desired impact on the economy, in the medium term,” Nkuna said.

She could not tell whether at its next meeting, the Monitory Policy Committee could effect another rate cut.

In a separate interview, Economics Association of Malawi President Lauryn Nyasulu said the central bank might consider maintaining the policy rate.

She said, while further reduction in policy rate had potential to stimulate economic activities amid the Covid-19 pandemic impact, the move might entail the government remaining the ultimate beneficiary as it continues borrowing heavily locally.

“Low interest rates have the potential of crowding out private sector investment, given the current huge fiscal deficit. And, more likely, the government may resort to further borrowing on the domestic market,” Nyasulu said.

Meanwhile, Nyasulu has singled out weakening of the Kwacha and a recent surge in fuel pump price among key risks still haunting the economy.

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