The Reserve Bank of Malawi (RBM) has for the third time since December 2012 resolved to maintain the bank rate at 25 percent.
The central bank last raised the benchmark rate—the rate at which commercial banks borrow money from the lender of last resort—on December 3 2012 by 400 basis points from 21 percent to 25 percent.
The decision by RBM to maintain the indicative cost of borrowing follows the central bank’s Monetary Policy Committee (MPC) meeting chaired by RBM Governor Charles Chuka on Tuesday this week to review recent economic developments.
“Based on regular economic and monetary analyses, the MPC decided to keep the bank rate and the liquidity reserve requirement [LRR] unchanged at 25.0 percent and 15.5 percent, respectively,” reads the latest minutes of the third MPC meeting for 2013, seen by The Nation on Wednesday.
Every commercial bank is obligated to hold minimum reserves of its customer deposits, normally in form of cash which is physically stored at the central bank and is called LRR.
However, despite RBM maintaining the base lending rate at 25 percent for last five months, the financial market has seen commercial banks hiking their respective lending rates to over 40 percent, defying the market dictates.
RBM has said in the minutes that in arriving at this decision to maintain the base lending rate, its committee considered latest developments in the economy and the need to closely monitor the situation in the next few months.
Year-on-year headline inflation rate decelerated by 1.5 percentage points to settle at 36.4 percent backed by improved availability of maize.
It also observes that during April 2013 signs of kwacha stabilisation were evidenced by the appreciation of the local currency against the dollar mainly on account of curtailed demand for foreign exchange as a result of tight monetary conditions and proceeds from tobacco auction sales.
The strengthening of the kwacha against the dollar, according to RBM, will serve to dampen inflationary pressures, including fuel prices, provided that the stability is sustained over the next few months.
It says although liquidity conditions remain tight generally, bank credit growth remains strong. In the year to March, commercial bank lending to the private sector expanded by 28 percent from 23.7 percent in February.
