Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and small businesses have said last week’s 400 basis points increase in the policy rate to 18 percent will likely stifle investment in the short to medium-term.

Last month, commercial banks pegged their reference or interest rates at 13.9 percent, but following the rise in the policy rate, industry sources say banks will likely raise their lending rates 16.6 percent.

Speaking in an interview yesterday, MCCCI president Lekani Katandula said the rate hike was long overdue from a perspective of trying to control inflation.

But he said the effect of this ‘medicine’ is that it makes the cost of finance expensive for both consumption and investment.

Katandula, who is also Illovo Sugar (Malawi) plc managing director, said : “We need to keep encouraging investment to help control inflation through increased production, so one hopes the other factors that help attract investment like power availability and improved forex availability will be going in the positive direction to sustain our country’s investment attractiveness.”

Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said the increase in the policy rate will affect small and medium enterprises (SMEs) growth as borrowing from banks will be expensive.

“Access to finance for SMEs from banks has been an issue for some time. We fail to borrow because the rates are prohibitive,” he said.

In a separate interview, Indigenous Businesses Association of Malawi president Mike Mlombwa said acquiring new loans and servicing old ones will become a challenge for most businesses.

He said a rise in lending rates is discouraging businesses from borrowing, a development which will affect their operations as they depend on bank loans to capitalise their businesses.

“Over time, most businesses have lost property due to loans default. The continued rise in lending rates, therefore, spells doom for us as borrowing is becoming even more expensive,” said Mlombwa.

During the fourth Monetary Policy Committee (MPC) Meeting last week, Reserve Bank of Malawi (RBM) Governor Wilson Banda said the committee noted that high inflation could frustrate the country’s economic recovery process while also eroding purchasing power of households.

He said: “In the absence of measures to contain inflation, rising prices will continue to diminish the welfare of households.

“The MPC, therefore, considered expeditious tightening of monetary policy stance as further delays could risk entrenching inflation expectations.”

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