The Reserve Bank of Malawi (RBM) mopped about K15.5 billion (about $38.7m) through open market operations (OMO) from the economy at 28 percent in a drive to maintain money supply.
OMO is an activity by a central bank to buy or sell government bonds on the open market as a primary means of implementing monetary policy, including the manipulation of interest rates and inflation.
RBM daily market statistics indicate that on November 7 2013, the discount window accommodated K1.6 billion at 25 percent whereas the interbank lending stood at K1.8 billion at 26.8 percent which has generally been rising since mid-July.
However, RBM spokesperson Mbane Ngwira, in an interview on Monday, noted that the indicated OMO was a reflection of transactions that took place on November 7 2013.
The November 7 RBM report indicates that the central bank injected K18.5 billion under foreign exchange transactions, that is bought foreign exchange from the market while releasing the local unit into circulation.
Said Ngwira: “To sterilise the effect of the injected money which was made through foreign exchange transactions, RBM withdrew K17.3 billion through open market operations. An injection may take 90 days to have an effect on the market. Within that period, we take out that money.”
He further noted that RBM has not missed its inflation target because a comparison of prices shows that they are not higher than last year’s by looking at the main determinants of inflation, including the exchange rate and the fuel price.
In September 2013, the inflation rate dropped to 21.7 percent as compared to 28.3 percent during the same period last year, according to the National Statistical Office (NSO).
However, RBM’s August 2013 notes show that consistent with expectations in the current fiscal framework, government continued to inject substantial liquidity into the banking system.
Reads the report in part: “A total of net OMO of K3.74 billion and foreign exchange sales K5.52 billion were not enough to sterilise the fiscal injections. As a result, a net injection of K9.5 billion was injected into the banking system.”
The August report notes that liquidity in the banking system improved during August 2013 due to continued substantial injections from net government operations in July and August 2013.
The RBM monthly report indicates that daily average excess reserves were highest in August 2013 at K12.9 billion, as a result, the weighted average interbank rate closed the month at 16.54 percent, about 8.5 percentage points below the Bank rate.
However, recently some commercial banks have been struggling to meet their liquidity requirements with come borrowing though the discount window and on the interbank market.
