Implications of Reduced Bank Rate on Malawi's Economy

The bank rate(the rate at which commercial banks borrow from the central bank) is one of the main instruments used by the Reserve Bank of Malawi to implement monetary policy. The rate was last reduced in November 2007, from 17.5 percent to 15 percent and was maintained at that level until 1st August 2010 when it was further cut down to 13%. However, commercial banks’ prime lending rates and average savings rate remained at 19.6 percent and 3.3 percent, respectively. According to the Governor of the Reserve Bank of Malawi-RBM, Dr. Perks Ligoya the decision to reduce the bank rate was in light of good progress made in reducing inflation. Furthermore, RBM spokesman Samuel Malitoni emphasized that the reduction aimed at promoting private-sector growth.

This paper analyses the implications of the reduced bank rate to the Malawi’s economy and provide policy guidelines to Government and financial sector on how to address impending challenges.