The Bankers Association of Malawi (BAM) has said interest rates will decline considerably if the economy achieves tangible gains.
BAM executive director Lyness Nkungula responding to a questionnaire in an e-mail on Monday said interest rates will decline if inflation continues to recede.
“Determination of interest rates is more complicated than simple manipulation of Reserve Bank of Malawi (RBM) base lending rate. Commercial banks adjust interest rates based on tangible economic trends after a thorough decision-making process. It is also important to note that interest rate is a demand-supply issue—the willingness of depositors to save versus investors to borrow. [However] there is high expectation that interest rates will come down if the economic fundamentals continue to show improved trends,” said Nkungula.
She added that a tight monetary policy normally affects money supply and can also affect demand depending on the instruments being used by RBM.
She noted that where the policy tightens the money supply, availability of money at commercial banks’ disposal to lend out, among others, is affected.
Nkungula argued that a critical function of a commercial bank is to attract deposits and lend out to borrowers, noting that the current scenario where we have observed Treasury bills being oversubscribed means that borrowers at the existing high interest rates are few.
BAM, however, noted that controlling and reducing inflation is very critical to the economy’s well-being, arguing that if inflation continues to decline, the country should expect interest rates to respond accordingly.
Commercial banks end-March and early-April this year raised interest rates apparently due to hostile economic environment. To date Treasury bills yields have declined, inflation has receded, interbank lending rates have fallen and liquidity has improved but a few banks—Standard Bank and Ecobank have reduced their base lending rates.