RBM downplays banks’ liquidity squeeze
The Reserve Bank of Malawi (RBM) has said the liquidity squeeze some commercial banks are facing is a deliberate move by the central bank to contain certain macroeconomic variables.
RBM spokesperson Mbane Ngwira said this in an interview on Wednesday in reaction to a recent situation in which some commercial banks are in a situation where depositors are demanding larger withdrawals than normal, a situation which has forced them to borrow from the central bank at 29 percent rate through what is called Lombard facility or discount window borrowing.
Lombard facility is largely meant for banks that are stressed and do not have enough liquidity or cash to meet their obligation.
For example, in the first half of this year, commercial banks borrowed over K200 billion from the central bank’s facility, according to Lombard facility borrowing figures, a situation market analysts have described as a near crisis.
But Ngwira said liquidity squeeze has arisen due to measures taken by monetary authorities.
He said: “This is a strategy to contain certain macroeconomic variables in line with the growth prospects of the economy. It is not and cannot lead to liquidity crisis as this is resulting from actions of the monetary authorities.”
Ngwira said the move is aimed at achieving price and financial stability in the medium-term such as reining inflationary pressures occasioned by the shortage of food,
particularly maize.
A Blantyre-based investment advisory firm Alliance Capital Limited, in its weekly update, said the liquidity situation is partly blamed on high inflation rate, kwacha depreciation, poor tobacco performance and a drop in commercial bank funds.
The investment firm argued that high inflation, occasioned by rising food inflation because of the maize shortage, has caused most people to hold on to their money to support their consumption than making deposits.
The firm also said other the depreciation of the kwacha has increased production costs for most businesses particularly those that import raw materials for production purposes, which means that most businesses are struggling to make profits and save disposable income.
Tobacco performance has been poor this year and proceeds so far are down by 30 percent compared to earnings realised in the same period last year.
RBM governor Charles Chuka, in the fourth Monetary Policy Committee (MPC) statement released on Wednesday, said the central bank is committed to using monetary policy to place inflation on a clear downward path as well as manage second round effects from food inflation.
“The bank will ensure that the policy rate remains above overall inflation. The MPC observed that the underlying inflationary pressures could be mitigated if the maize supply situation is improved in the months ahead,” he said.
RBM said it will intensify its interaction with stakeholders in the financial and real sectors to strengthen monetary policy transmission process, obtain feedback and publicise commitment to regain price and exchange rate stability.
