THE IMPACT OF INTEREST RATE LIBERALISATION ON SAVINGS IN MALAWI

Abstract

During mid and late 1980s Malawi undertook financial reforms which, inter alia, included interest rate liberalisation. This interest rate liberalisation had several aims amongst which were; to introduce market determined interest rates that could enhance savings mobilisation process and to bring effective competition in the financial system. Unfortunately, interest liberalisation has partially met its intended objective of enhancing savings mobilisation due to structural and institutional rigidities that exist in the financial system in general and banking sector in particular. The financial system is narrow and underdeveloped and the banking system is characterised by oligopolistic tendencies. Furthermore, the financial and banking sector is typified by segmentation and fragmentation and so far there is a general observation that savings mobilisation has not been accorded the policy focus it deserves. As the study has shown, the policy of interest rate upward adjustment, enhances, insignificantly, private sector savings in Malawi and encourages the private sector to save. Policy wise, this implies there is need to re—orient the financial policies further and to restructure the entire financial system in order to remove the prevailing structural and institutional rigidities.