RBM pleads for patience on interest rates cut

Reserve Bank of Malawi (RBM) Governor Charles Chuka has pleaded with Malawians to exercise patience with the commercial banks that are yet to react to the central bank’s reduction in policy rate last month.

Last month, the Monetary Policy Committee (MPC) of RBM reduced the policy rate by three percentage points to 24 percent from 27 percent because of the reduction in the inflation rate and stabilisation of the kwacha.

Since then, two Malaiw Stock Exchange (MSE)-listed banks National Bank of Malawi (NBM) and Standard Bank have put their base lending rates at 32 percent while Leasing and Finance Company  (LFC), a subsidiary of another listed bank, FMB, has pegged its rate at 33 percent.

However, the business community has been calling on commercial banks to react swiftly by reducing their base lending rates.

In an interview on Friday, Chuka said reacting to the policy rate reduction needs thorough consideration; hence, the need for the public to exercise patience.

He said: “We need to be patient with the commercial banks as adjusting rates is not a child’s job. The banks will take their time, but they will certainly move in the future. This is what they do all the time.

‘They are all moving one by one. People should not be impatient that banks are not reacting. Banks react to the policy rate in either direction. They are calculating their position, balance sheets, risks and customer needs [and] soon they will come forward and adjust their rates accordingly.”

In an earlier interview, Economics Association of Malawi (Ecama) executive director Edward Chilima urged commercial banks to “immediately respond because normally they take time to respond or they may reduce their rates lower than the reduction in the bank rate. This needs some patriotism”.

While arguing that it is a business decision that banks will have to make, Bankers Association of Malawi (BAM) executive director Lyness Nkungula said the obvious thing is that  the response will be positive.

Malawi Confederation of Chambers of Commerce and Inudstry (MCCCI) chief executive officer Chancellor Kaferapanjira earlier said  although the reduction in policy rate may stimulate private sector borrowing to some degree, the rate still remains high for businesses that would want to borrow for long-term investment projects.

He said: “The private sector is not borrowing for productive long-term investment purposes anymore at such high existing interest rates, and therefore, it does not make sense keeping the policy rate at 27 percent.

“The reduction may stimulate private sector borrowing to some degree, but the rate still remains high.”