BusinessNews

RESERVE BANK INCREASES POLICY RATE

By Our Reporter

Malawians should brace for increased cost of borrowing when transacting with banks as the Reserve Bank of Malawi has adjusted upwards the Policy Rate from 22 percent to 24 percent.

The rise of this lending rate which commercial banks borrow from the central bank will likely trigger the later to adjust upwards their respective lending rates, thereby making cost of borrowing higher.

In a statement RBM Governor , Wilson Band said that, in arriving at this decision , its Monetary Policy Committee meeting noted that price pressures have intensified, such that inflation is projected to remain substantially above the medium-term target for longer.

But economic commentator, Kingsley Jassi highlights that the move shows there is an indication of continued high inflation and that the central bank is trying to contain that by making access to credit more expensive.

He adds the country is in this situation because of poor fiscal policy that seems to be pulling against monetary policy objectives.

“Actually, these two policies are in conflict currently and it doesn’t help to stabilize the economy. While RBM is trying to tighten monetary policy, Treasury is loosening fiscal policy by increasing expenditure through huge fiscal deficit and entertaining expenditure overruns in the MDAs.

“This is creating pressure on both revenue and forex. The K1.3tn fiscal deficit is already weighing hugely on the economy as that means financing the deficit through domestic borrowing reduces the chances for the industry to access cheaper credit and do more economic activities that can grow the economy and ease the economic hardships,” says Jassi.

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