Business and Finance

Reference rate down 0.2 percentage points

Reference rate down 0.2 percentage points

Commercial banks have revised downwards the reference rate for December by 0.2 percentage points to 25.3 percent from 25.5 percent.

The banks have indicated in separate statements.

The reference rate serves as an indicator within financial markets, playing a crucial role in determining the rates of various financial instruments.

This means that borrowers could enjoy slightly reduced interest rates.

Financial Market Dealers Association President Leslie Fatch said the reduction in the rate has been informed by a drop in overnight interbank rate which has the second largest weight, at 25 percent from 24.20 percent to 23.39 percent.

“This may be attributed to an increase in the excess reserves in the market, suggesting an increase in liquidity which explains the MPCs decision to increase the Liquidity Reserve Ratio (LRR) to counter these excess reserves.

“Considering the tight monetary policy stance, we do not anticipate a reduction in the interest as it would be counterproductive to the monetary policy stance,” Fatch said.

But Malawi Confederation of Chambers of Commerce and Industry President Wisely Phiri said the decrease was insignificant to positively impact borrowers.

“This is very insignificant to make any impact on the borrowers. We are still worse than before when you factor in other macro-economic conditions such as inflation. However, it may be a start and we look forward to seeing reductions that will make sense and spur private sector production,” Phiri said.

Economist Marvin Banda said commercial banks merely provide incentives to lure more borrowers to enter into contracts in order to finance the needs for end of the year expenditures.

“The reduction is minuscule and would not necessarily appeal to the largest proportion of non-government borrowers,” Banda said.

He added that once we cross over to the last knockings of the financial year, it should be clearer for the economy on the probable direction macroeconomic fundamentals may sway the outlook.