The Reserve Bank of Malawi (RBM) has maintained its base lending rate at 25 percent taking into account inflation and the food situation.
In a Monetary Policy Committee (MPC) meeting held on Tuesday, which was chaired by RBM Governor Charles Chuka, members decided to maintain the RBM’s base lending rate at 25 percent on the promise that inflationary risks still remain on the upside.
Inflation rate declined to 27.9 percent in June after peaking in February at 37.9 percent, while interbank lending rate dropped to an average 24.39 percent on August 6, a few notches below the discount
window rate, after peaking in March at around 42 percent.
Commenting on the MPC’s resolution against the inflation and interbank lending rate, a money market analyst James Chikavu Nyirenda said RBM is trying to stabilise the economy.
“RBM would like to maintain a level of stability by targeting a longer period average, over the next 12 months. RBM maintained its base lending rate at 25 percent even when inflation peaked at 37.9 percent in February because it would be crazy to target inflation on a month to month basis. Currently, commercial banks have surplus cash and have no reason to go to the discount window because borrowing from RBM is the last resort.
“Commercial banks have so far mobilised funds and have also reduced on lending due to high interest rates so they may not be stressed soon,” said Nyirenda.
But the MPC noted that a seasonal increase in food stocks across the country contributed to the slowdown in inflation, although the reduction was not as marked as expected.
The committee noted that year-on-year growth in money supply dropped to 25.7 percent in June 2013 and was below the projected nominal GDP growth of 32.1 percent for 2013, reflecting a sustained tight monetary policy stance.
