Policy rate reduction should be treated with caution – Expert

An economist has advised government to be cautious of the effects of the reduction of the policy rate from 13.5% to 12 %.

The economist Professor Betchani Tchereni from the Polytechnic has said there is a high possibility that people could borrow money for consumption and use the money to import various products since the country relies on imports.

Tchereni said: “People who are consuming the may need some loans from the financial institutions for different large commodities so when credit is cheaper they are able to purchase those items.”

He said this could cause a strain on the demand for foreign exchange and which has already been an issue in the country.

Tchereni added that if people borrow money for consumption and start importing commodities this will also have dire effects.

“In the case of Malawi people will borrow money and buy imported commodities and that can actually worsen our trade balance and it will make us lose out in terms of foreign exchange,” he said.

He has since advised that the country should be extra careful with this move which has its benefits as well as drawbacks.

During the fourth Monetary Policy Committee meeting held on Saturday 6 November the Reserve Bank of Malawi announced that it had reduced the policy rate to 12.o percent.

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