Commercial banks borrowed K27.5 billion on the interbank market—from the Reserve Bank of Malawi (RBM) and other commercial banks—according to available data, signalling liquidity squeeze in the money market.
The RBM also sold foreign exchange amounting K583 million on May 2 to the market apparently to support importation of the country’s critical requirements.
In an interview on Wednesday, RBM spokesperson Mbane Ngwira noted that the market liquidity had recently worsened but assured that the situation was temporary and the central bank would reverse the situation.
Commenting on the forex sale bearing in mind that forex is more available now and that the central bank has been buying from the market, Ngwira said the transaction was for fuel transaction.
He noted that the country’s fuel obligations still go through the RBM.
Available data provided by the RBM indicate that commercial banks utilised both the overnight interbank lending market and the Lombard facility, a relief window for stressed banks.
According to Nico Asset Managers, liquidity levels decreased last week averaging K4.3 billion a day from average of K14.5 billion in the previous week.
Borrowing between banks averaged K7.2 billion per day in the week ending May 2 2014, increasing from K1 billion per day in the previous week while the interbank borrowing rate for the week decreased to 8.24 percent from 8.27 percent in the previous week.
During the Monetary Policy Committee (MPC) meeting held last week the committee took note of high market liquidity and urged for the intensification of monetary operations.
The MPC pointed out that in order to balance the impact of the RBM forex purchases from the market on liquidity and the anticipated fiscal risks, the MPC made a deliberate decision to review the policy rate which stands at 25 percent at the next meeting.