RBM speaks on monetary policy

Reserve Bank of Malawi (RBM) says it will continue monitoring the market and making prudent decisions to support economic recovery in light of the Covid-19 pandemic which has affected economic activity.

RBM spokesperson Onile Nkuna said this on Friday in response to a commentary by the Economists Intelligence Unit (EIU) quoted in a recent Nico Asset Manager’s economic report which implored the central bank to continue taking prudent steps.

In its commentary, the EIU said it expects authorities to maintain their accommodative stance throughout 2021 to hold the rate at 12 percent to support a domestic recovery.

But Nkuna said RBM is cautiously monitoring  the market and the Monetary Policy Committee (MPC) will review the situation at the committee She said: “The monetary policy has been rather accommodative in the recent past and continues on the same trail. This stance, alongside other financial sector initiatives, like moratoriums on borrowers, were aimed at supporting economic recovery in light of the Covid-19 pandemic that weighed heavily on economic activity.

“Going forward, MPC which meets to review such stances, will decide on the course of the policy rate.”

The RBM has since April last year undertaken prudent measures to incentivise the economy ,including reducing the Liquidity Reserve Requirement (LRR)  by 125 basis points to 3.75 percent.

At the first MPC meeting this year, RBM maintained the policy rate at 12 percent, LRR ratio on domestic and foreign deposits at 3.75 percent and the Lombard Rate at 20 basis points above the policy rate.

The decision, according to RBM Governor Wilson Banda, was meant to allow the impact of the last policy rate reduction to transmit through the economy and support economic recovery.

Commercial banks’ liquidity levels have since significantly improved with RBM data showing a 61.93 percent increase in the daily average liquidity to K26.98 billion in February 2021 from K16.66 billion in January 2021.

This, according to money market analysts, is an ideal situation in an economy as it puts increased resources at the disposal of lending institutions to extend credit to their customers.

According to RBM figures, interbank borrowing averaged K2.20 billion per day in February, a decrease from K4.96 billion in the previous week.

At the same time, overnight interbank borrowing volume also decreased during the period to a daily average of K6.12 billion in February 2021 from K11.65 billion in January 2021.

As a further indication of improved liquidity, access to the Lombard facility—a discount window borrowing for stressed banks— also decreased to K12.25 billion in February 2021 from K20.19 billion in January 2021.