The Reserve Bank of Malawi (RBM) has reduced the base rate —the rate at which commercial banks borrow from the central bank—from 18 percent to 16 percent after considering the country’s inflation outlook.
Malawi’s headline inflation continues to drop and it is now at 7.7 percent as the National Statistical Office (NSO) indicated.
The reduction in Base rate follows calls by Nico Asset Managers recently who urged monetary authorities to induce a further cut in the Policy rate.
RBM Governor Dr Dalitso Kabambe said on Wednesday that the central bank through its Monetary Policy Committee (MPC) has reduced the Policy rate by 200 basis points to 16 percent.
Apart from reducing the Base rate, MPC has maintained the Liquidity Reserve Requirement (LRR)at 7.5 percent and kept Lombard rate at 200 basis points above the Policy rate.
“To arrive at this decision , the committee took into account the recent disinflation , inflation outlook,
and the desire to consolidate the gains made in in stabilizing the economy,” said Kabambe.
According to the central bank, the decision to reduce the rate was done after considering the recent inflation outlook and the need to consolidate the achievements attained in stabilizing the economy.
Meanwhile, one of the country’s economists and social commentator, Heery Kachaje has urged the commercial banks to reduce their interest rates.
“This should encourage commercial banks to further reduce their interest rates,” commented Kachaje.
The continued fall in the country’s inflation is largely driven by wide food availability, resulting in prices remaining subdued. Currently, the country’s staple food, maize, is trading at an average price of K4,500 per 50 kilogramme bag.
According to NSO, the headline inflation for November has gone one step down from October’s 8.3 percent compared to the headline inflation of 20.1 percent for the same period last year (October 2016).
The November inflation is just 1.4 percentage points shy of the record low of 6.3 percent in December 2010.
Inflation averaged 15.11 percent from 2001 until 2017, reaching an all-time high of 37.90 percent in February of 2013 and a record low of 6.30 percent in December of 2010.
Meanwhile, Malawi Kwacha has started registering positive trends as it is appreciating against major foreign currencies especially the United States dollar.
Malawi Kwacha has been largely stable for the past one year or so despite the country’s inflation going down to a single digit.
According to the RBM Financial Market Development, Kwacha appreciated from around K734 to a dollar to K730 this week.
Other economic commentators while commending the central bank for the reduced bank rate, said there is more that needs to be done if the economy is to turn around.Follow and Subscribe Nyasa TV :