Malawi commercial bank deposits decline
Commercial bank deposits have declined, interbank rates risen while the kwacha has depreciated as the economy enters the lean period after the closure of the tobacco marketing season, official figures show.
Reserve Bank of Malawi (RBM )daily financial money market reports indicate that required reserves—15.5 percent of total bank deposits—declined to K42.3 billion on September 27 down from K43.9 billion on September 7. Along with the decline in bank deposits, the average interbank lending rate has risen from 18.21 percent to 20.44 percent in the same period, an indication that liquidity is worsening.
RBM official exchange rates indicate that the kwacha has declined by 18 percent since June 3, to selling at K518 on September 30 against the euro, and by 20 percent to selling at K619 against the pound sterling. The local unit has also depreciated by 13 percent to selling at K384 per dollar and by 13 percent to selling at K38 against the rand to in the same period.
But recently the RBM governor Charles Chuka was quoted in The Nation as having said that the central bank has sufficient forex reserves and enough muscle to make sure that no one tries the governor with the kwacha.
He warned commercial banks not to play around with the kwacha as he will be watching which bank is playing games.
The worsening liquidity, as reflected in the decline in the bank deposits, coupled with the rising interbank rate may signal a halt to the recent decline in commercial bank base lending rates.
Some commercial banks recently reduced their base lending rates from around 40 percent by two percentage points due to the easing inflation and improvement in liquidity.
RBM in the April 2013 economic report noted a rise in currency in circulation which the central bank said was due to the seasonal transactional demand for money upon realisation of proceeds from agricultural produce sales.
However, the Monetary Policy Committee (MPC), according to its meeting held on Thursday, noted that market liquidity has increased substantially, as a result of the central bank’s intervention to build up reserves.
The MPC resolved that to contain the inflationary impact of this liquidity, the Committee underlined the need for intensified monetary operations.
Since last year, to rein in inflation after the 49 percent depreciation of the kwacha and its subsequent flotation, the RBM has been implementing tight monetary policies with the central bank moping the economy off excess liquidity, raising the LRR 15.5 percent and the base lending rate to 25 percent.
Commercial banks consequently struggled to meet their regulatory liquidity requirements which necessitated the RBM to rescue the struggling commercial banks through the non-collateralised discount window which the central bank has this year ruled out will not be case this year.
