The Reserve Bank of Malawi (RBM) has resolved to reduce the policy rate--also known as the bank rate—a key driver of interest rates on loans--to 13.5 percent in the short-term on account of continued decline in inflation and sustained economic gains.

Dr Dalitso Kabambe,  Governor Reserve Bank of Malawi who also chairs the Monetary Policy Committee ,MPC,  said the committee has resolved to slash bank rate.

The decisions, announced at a news conference in Blantyre pushed the policy rate from 14.5 percent to 13.5 percent.

In his announcement, Kabambe said the central bank's MPC made the decision after a Macro-economic Conditions Review Meeting.

Kabambe said the committee's assessment is that the projected improvement in macroeconomic outlook for 2019 remains firm with inflation projected on a downward trend.

“Notably, there has been significant decline in non-food inflation, a trend which is expected to be sustained in the medium term,” said Kabambe.

He said the MPC therefore resolved to reduce the policy rate by 1.0 percentage points from 14.5 percent to 13.5 percent.

However, Kabambe said the Lombard rate has been maintained at 0.5 percent and 3.75 percentage, respectively.

“At this level, the policy stance remains adequately tight to guide inflation towards the medium term objective of 5 percent. Monetary policy decisions will continue to be guided by inflation forecasts and outcomes as well as progress in fiscal consolidation measures,” he said.

The governor also said with forecast in maize production, the country is likely to get the lowest inflation rate ever since 1990 this year, with growth projected at five percent, up from 4.2 percent in 2018.

This growth is higher than the 3.5 percent global growth and 3.7 percent sub-Sahara African growth, according to him.

Kabambe further said; “As inflation rate continues to go down, our objective is to ensure that inflation rate goes down to five percent, our policy rate would be at 11 percent.

Looking at these macro-economic indicators, we all agree that our economy has indeed recovered.

“Recovery of economy is one side of the story, what sets in from there is what the private sector needs to grow the economy by expanding their economic activities so that the stability in the economy would be meaningful to Malawians,” he said.

The Monetary Policy Committee (MPC) last reduced the policy rate in January by 1.5 percentage points from 16 percent to 14.5 percent.

This was 13 months since MPC last trimmed the policy rate, which was revised downwards in November 2017.

This must have been good news to borrowers who have been struggling to settle their loans with commercial banks.