RBM withdraws K103.5bn from money market
The Reserve Bank of Malawi (RBM) has withdrawn a net of over K103.5 billion (about $258m) from the money market between May 2 and June 12. RBM daily financial market statistics indicates.
The central bank has been withdrawing from the financial sector in accordance with the tight monetary policy that it is being implemented.
Money market operations are a primary means through which central banks implement monetary policy. The usual aim of open market operations is to manipulate interest rates by expanding or contracting money supply.
Commenting on the development, Bankers Association of Malawi (BAM) first vice-president Misheck Esau in a telephone interview on Wednesday, said liquidity has improved.
“Liquidity has improved and this may be why the central bank has made such withdrawals since it is implementing an inflation targeting monetary policy. Most commercial banks are not stressed and are no longer borrowing from RBM. The improvement in the liquidity may induce a fall in interest rates because these two are related,” said Esau.
However, RBM spokesperson Efford Goneka was not available for a comment.
The last Monetary Policy Committee (MPC) meeting held on May 7 noted that although liquidity conditions remain tight generally, bank credit growth remains strong.
The MPC further noted that commercial bank lending to the private sector expanded by 28 percent from 23.7 percent in February and further argued that this credit expansion needs to be contained in order to ensure that inflationary pressures are reined in.
In light of the above developments, the MPC resolved to keep its monetary policy stance unchanged by maintaining RBM base lending rate at 25 percent and the liquidity reserve requirement at 15.5 percent. The committee feared that it would be premature to loosen monetary policy at this stage.
Since last year, the national budget has been anchored by a prudent and tight monetary policy stance designed to contain money growth and achieve price stability while allowing for private sector growth.
Presenting the 2013/14 proposed budget, Minister of Finance Ken Lipenga said money is programmed to grow at about the pace of nominal gross domestic product (GDP) in the near term. He added that further financial deepening in the medium term would allow broad money to grow faster than nominal GDP without fuelling inflation.
He, however, cautioned that monetary authorities will monitor the inflation rates very closely so as to adjust interest rates in line with the levels of inflation.
Recently, inflation rate has receded on account of food. In April inflation dropped to 35.8 percent from 36.4 percent in March and 37.9 percent in February.
