RBM Cushions The Banked Against COVID-19 Shocks

RBM Cushions The Banked Against COVID-19 Shocks

The central bank in Malawi has injected a K12 billion stimulus for commercial banks to disburse as loans to their customers in an attempt to cushion them against the effects of the COVID-19, a disease caused by the Coronavirus.

Reserve Bank of Malawi Governor Dalitso Kabambe, who is Chairperson of the Monetary Policy Committee (MPC), said several measures have been put in place to ensure that the country’s economic gains are preserved.

RBM: Move in on COVID-19 Effects

“The Committee resolved to cut the Liquidity Reserve Requirement (LRR) on domestic deposits by 1.25 basis points to 3.75 percent from 5.0 percent,” he said.

In layman’s terms, LRR, is the portion of deposits that commercial banks keep at the central bank as reserves without interest.

Generally, the LRR prompts commercial banks to cut their lending rates ensuring that the benefits trickle down to customers.

What the current announcement imply is that for every K 100 deposited by the customer, commercial banks will now have an obligation to deposit K3.75 from the requirement to deposit K 5.00 out every K100 deposited by their customers previously.

He added that the reduction will immediately release liquidity of about K 12 billion uniformly across the banking system.

This, said Kabambe, will be in proportion to liabilities of the banks.

“The MPC further resolved to reduce the LombardRate by 50 percent to 0 2 percentage points above the Policy Rate,” he said, adding this will slash the cost of accessing funds from the Central Bank and, therefore, enable commercial banks to extend the benefits to borrowers.

Kabambe: Promising Outlook

The central bank chief observed that the decision to ease banking system liquidity constraints and incentivise commercial banks to offer a lifeline to sectors hit hard by the COVID-19 pandemic.

While the global growth projection for 2020 was revised downwards from 2.9 percent to 2.4 percent due to the COVID-19, the Malawian central bank is optimistic the domestic economic growth will likely remain stable.

“The recent strong agricultural harvests have boosted growth but the growth path for the remainder of the year will depend on the impact of the COVID-19 on the rest of the sectors following the disruption of the global and regional economic links,” said Kabambe.

He added that Malawi’s economic growth has potential to rise between 6 and 7 percent in the medium term.

Kabambe has attributed the optimism to the country’s assets that are resilient to shocks ranging from climate change, improved access to finance, crop diversification and improved business climate.

Commercial Banks: To Trickle Benefit to Customers

Furthermore, the central bank also highlights a stable inflation- having witnessed a deceleration of headline inflation by 0.5 percentage points to 11.0 percent between January 2020 and December 2019.

“The outturn reflects weakening food prices. Non-food inflation remained low and stood at 5.4 percent in February 2020,” he added.

He projects inflation to decline to 9.3 percent at the end of 2020.

“However, uncertainties surrounding the evolution of the COVID-19 pandemic is the key upward risk,” he adds.

A stable Kwacha trading at K 741.01 against the US dollar and plummeting oil prices, hitting a lowest low in 18 years offer some semblance of hope to the country’s economy in the face of the COVID-19.

With three cases reported so far in the capital Lilongwe, there is expectation that containment measures will be enforced, leaving businesses grappling to stay afloat.

Other businesses will likely be forced to fold while some will be forced to downsize.

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