Standard Bank has become the first bank in Malawi to reduce interest rates to 32% from 38% in a move Chief Executive Officer Andrew Mashanda says aims at giving the bank’s customers opportunity to obtain affordable loans for reinvestment.
Mashanda said in a statement on Friday the bank’s new base lending rate of 32 percent takes effect on Monday August 3 and follows the Monetary Policy Committee’s decision to cut Liquidity Reserve Ratio (LRR) by half to 7.5%.
“Our decision to revise the base lending rate is in response to the Reserve Bank of Malawi’s latest directive to reduce the Liquidity Reserve Ratio (LRR) from 15.5% to 7.5%.
“The reduction in LRR has in turn reduced the opportunity cost of holding liquidity with the central bank, and in turn we have decided to pass the benefit back to our customers and the market. In reducing the base lending rate, Standard Bank has prioritized the needs of its customers who require to borrow for investment,” he said.
LRR is the mandatory portion of commercial bank’s deposits with the central bank expressed as a percentage.
Mashanda said the bank will continue to monitor economic fundamentals so as to take an appropriate position in the interest of its customers and the investing community.
Due to a donor aid freeze coupled with decline in growth (GDP) as a result of low agricultural production caused by floods, Malawi faces a liquidity crunch.
As a result banks have been marking the cost of their money, including forex upwards so as to remain financially sound while maintaining profitability. But the cut in LRR means that the banks have a lot of idle cash which must move out into the market at a cost.
It remains to be seen how the authorities will contend with non-food inflation following the latest adjustment in LRR. Inflation has been rising in recent months.