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Interest rates will go down further—Jumbe
by: Aubrey Mchulu, 12/3/2003, 1:58:35 PM

 

Finance Minister Friday Jumbe said on Tuesday the base rate will further go down from the present 35 percent effected by the Reserve Bank of Malawi (RBM) on Monday this week because government is spending within its means.
Describing the cut in the RBM lending rate to commercial banks from 40 to 35 percent within two weeks as a “positive but expected development”, Jumbe said in an interview in Blantyre that the downward trend of the rate is a plus to his ambition to restore macroeconomic stability in the country after three turbulent years due to donor aid freeze.
“The interest rates will go down further. That I can promise the nation but this will not happen overnight,” said a clearly excited Jumbe, adding: “This reduction is a reflection that as government we are living within our confines.”
RBM Governor Elias Ngalande said on Monday the central bank has reduced the base rate to 35 percent after cutting it from 45 percent to 40 percent two weeks earlier because of Treasury’s decision to reduce excessive borrowing.
Government has a K50 billion domestic debt which Jumbe said “has not reduced much” because it was suffering heavy interest charges at 45 percent.
“Forty-five percent was too high but now that it is at 35 percent I think we will be okay,” said Jumbe.
He said as the interest rates go down, more individuals and businesses will be able to borrow money from the banks for investment thereby creating employment for others. He added that inflation would also go down, making the cost of living affordable in the process.
Jumbe said government is not going into new borrowing but only servicing the outstanding debts hence the banks are responding to this trend with the reduction.
Responding to a question on why there is continued auction of Treasury Bills (TBs), instruments used by government to borrow money from the public, if government is not making fresh borrowings, Jumbe clarified that sometimes government issues TBs for payment of old maturing investments .
“The financial market is like a produce market where mangoes and tomatoes are sold. Business has to continue,” he said.
Earnings from investment in the money market instruments, the TBs and Reserve Bank of Malawi (RBM) Bills, have been declining over the past three weeks following news of the expected aid inflows to Malawi and the subsequent reduction in the RBM base rate.
For example, in its report for the week ended November 28, 2003, the Malawi Stock Exchange (MSE) said at the auction held on November 21, the average yield on the 91 days TB decreased from 38.05 percent to 36.67 percent while that for the 182-day TB dropped from 39.34 percentage points to 38.06 percent and the 273 days tenor decreased from 39.42 to 37.72 percent.
MSE also quoted RBM as reporting that in the RBM bills primary market whose auction was held on November 18, 2003, the 63-day RBM yield decreased from 38.38 percent to 35.82 percent and the 91 days tenor yield also decreased from 39.25 percent to 37.88 percent.

 
This story was printed from The Malawi Nation website, http://www.nationmalawi.com