Interbank borrowing surged slightly to an average of 11.87 percent in the second quarter of 2021 as level of excess liquidity reserves eased, a situation financial market analysts attribute to seasonality of the economy.
In the first quarter, the interbank borrowing rate averaged 11.15 percent.
Figures contained in the Second Quarter Economic Review by CDH Investment Bank show that, between April and June 2021, excess liquidity reserves averaged K12.28 billion per day compared to K18.95 billion per day during the first quarter of 2021.
According to the report, volume traded among banks on the interbank market increased in nominal terms to K884.88 billion in the second quarter from K657.75 billion in the preceding period.
The Lombard rate, however, was stable at 12.20 percent as the Reserve Bank of Malawi Monetary Policy Committee kept the rate unchanged during the review of monetary policy in April 2021.
In an interview, financial market analyst Cosmas Chigwe said the situation depicts seasonality of the local economy.
“Those short-term changes in interest rates also have the potential to affect people’s cash flows as they affect the reference rate, albeit marginally,” he said.
In a separate interview, banking and finance lecturer at Malawi Assemblies of God University Chiphinga Mwale said the covid pandemic could also have a bearing on the performance.
Bankers Association of Malawi (Bam), an umbrella body of commercial banks in the country, says the movements were normal.
Bam Chief Executive Officer Lyness Nkungula said, traditionally, demand for loans rises as the country transitions from the lean period.
“Normally, you have companies that engage in commodities increasing their borrowing from commercial banks so that they purchase grain and, when banks borrow more, interbank rate increases,” she said.
In most cases, such trends push up the cost of borrowing for individuals and businesses.
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.