THE Reserve Bank of Malawi (RBM) could be compelled to increase the bank rate further as government securities continue to be attractive.
The development has led to the average yield on the 182 Treasury Bill jumping to above the bank rate at over 16 percent, CDH Investment Bank has said.
T h e d e v e l o pme n t comes barely a month after RBM raised the country's bank rate by three percentage points from 13 to 16 percent, forcing commercial banks to adjust their base lending rates to around 21 percent.
A fur the r jump i n the cost of borrowing could negatively impact on capital investment by the private sector in the economy.
C D H s a i d i n i t s latest weekly economic commentary that in the last week of May, the average 182-day Treasury Bill rate had moved above the bank rate to 16.18 percent from the previous 15 percent.
The situation, according to CDH, is likely to result in the crowding out of private sector investment as banks may no longer f ind i t wor thwhi l e t o lend to the corporate and household sectors, which are considered to be risky, when the same funds can be lent to government at an equally high yielding rate and lower risk.
CDH s a i d , u n l e s s measures are put in place, the overall effect may be a reduction in national output.
"This trend, coupled with high inflationary pressures, may also put pressure on the Reserve Bank of Malawi [RBM] to raise the bank rate further in order to make monetary policy effective.
"The current market developments simply point out to the fact that the recent upward adjustment of the bank rate from 13 percent to 16 percent effected on 11th May 2012 may not be enough especially at a time like this when the market is critically short of liquidity," said the bank.
At the auction held on June 5, 2012, the average yield on the 91 days T-Bills tenor increased by 1.63 percent from 15.29 percent to 16.92 percent while the 182 days decreased by 0.18 percent from 16.18 percent to 16.00 percent with no bids for the 364 days T-Bills resulting in K1, 263.67 million being raised against an announced amount of K1, 226.00 million.
Wi th int e r e s t r a t e s jumping up, authorities have not conducted Treasury note auctions for the second month.
According to Nico Asset Managers, it is unlikely that authorities will go ahead with issuing further Treasury notes as with the higher interest rates will increase the cost of refinancing their long term debt.