RBM sees significant inflation fall in 2yrs

The Reserve Bank of Malawi (RBM) says it expects Malawi’s inflation to reduce significantly in the next two years, a development which would warrant a significant policy rate cut.

Currently, Malawi’s rate at which commercial banks borrow from the Central Bank stands at 27 percent a development which has seen commercial banks pegging their base lending rates at an average of 38.5 percent.

RBM Deputy Governor for Economics Naomi Ngwira told reporters on the sidelines of Nedbank launch of Branch of the Future in Blantyre that interest rates are high in the country because inflation is high.

Ngwira said the RBM, together with other stakeholders, are working on ways to deal with issues that drive inflation.

“We think that in the next two years, we should have the rate of inflation that would allow us to significantly reduce interest rates,” said Ngwira.

The deputy governor said, among other things, the central bank is working on ways to see how it can find ways to build what it calls ‘expectations’ that are positive, arguing that what drives inflation are expectations.

“So we are working on several fronts. We are not the only stakeholder in this. There are others involved as well. Of course the central bank plays a central role,” said Ngwira.

Local business lobby groups have been advocating for the reduction of the policy rate by the RBM to provide a leeway for commercial banks to slash their lending rates.

Indigenous Businesses Association of Malawi (Ibam) president Mike Mlombwa said interest rates of above 40 percent make it almost impossible for the local entrepreneurs to do business.

He argued that with declining business opportunities, many local businesses have struggled to square their loan obligations with banks resulting in defaults and repossession of property by banks.

“A reduction in the cost of borrowing should trigger an increase in business activity in Malawi,” said Mlombwa.

Presenting a paper during the 2016 to 2017 pre-budget consultations in Blantyre, the Institute of Chartered Accountants in Malawi proposed a reduction of interest rates to around 22 percent to allow businesses to flourish.