Malawi cuts bank interest rate on lower inflation

Malawi's central bank cut its bank rate to 17.5 percent from 20 percent on Wednesday, citing falling inflation and a strong economic turnaround.

"We have noticed a general improvement in economic fundamentals, with inflation going down and strong growth since the last revision," Maria Muwamba, Reserve Bank of Malawi spokeswoman, told Reuters.

The move was the first reduction in the bank rate in three years.

Good maize harvests have helped drive down inflation in the impoverished southern African nation, with the headline number easing to 7.7 percent year-on-year in June from 7.9 percent in May.

Inflation fell to single digits for the first time in four years in January this year.

The Reserve Bank of Malawi in March forecast the economy to grow by 5.6 percent in 2007, down from 8.5 percent last year.

Analysts welcomed the rate cut, which came into effect on Wednesday.

"It is a timely move, which we think will greatly assist to accelerate the pace of lending by the financial system," said Andy Kulugomba, head of Treasury and Finance at Nedbank Malawi.

Malawi is enjoying a bumper maize harvest for the second consecutive year, partly attributed to the government reintroducing input subsidies after scrapping them in 1996.

According to official data, the country has a surplus of 1.3 million tonnes of maize this season, up from 400,000 tonnes in the 2005/06 season, despite problems in some regions following flooding.

Food inflation accounts for 58.1 percent of the country's Consumer Price Index.