Banks borrow K4bn to ease liquidity hurdles

The Reserve Bank of Malawi (RBM) discount window accommodation—a facility for commercial banks to ease liquidity problems—jumped to K4 billion (US$9 638 554) last week from K1.3 billion (US$3 132 530) the week before, available figures have shown.

Figures from investment advisory firm Nico Asset Managers show that during the week ending December 20, commercial banks borrowed from the RBM—the country’s lender of last resort—at 25 percent in a bid to meet  regulatory liquidity requirements.

Borrowing between banks also jumped to an average K5.6 billion per day during the week, increasing from K3.5 billion in the previous week, while the average interbank borrowing rate for the week increased to 24.6 percent from 24.3 percent.

RBM spokesperson Mbane Ngwira last week told Business News that the central bank has intensified the open market operations to meet liquidity requirements and rein in inflation, currently 22.9 percent as of November 2013, according to the National Statistical Office (NSO).

However, experts have warned that the move by the RBM might worsen the liquidity situation, drive up short-term interest rates and increase lending rates, hitting hard individual borrowers and companies.

But Ngwira noted that the open market operations are an intensification of the RBM’s tight monetary policy to achieve end-March and end-June liquidity targets.

He argued that the RBM has opted to use repos in contrast to outright purchases because the market has an appetite for them and that they do not distort the market rates.

Ngwira said RBM has intensified the implementation of tight monetary policy and has been mopping the market of excess liquidity to arrest inflation which has started to go up since October.

RBM through repos—short-term securities issued by a central bank in an open market to control money supply—have since December 12 mopped a total of K21.2 billion from the market.

RBM recently said it will further tighten the monetary policy to address challenges due to delayed disbursements by the country’s major donors through the use of open market operations, bank rate and foreign exchange operations.