Key Business Points
- Tighten your cash flow: The Reserve Bank of Malawi’s (RBM) continued tight monetary policy stance has led to a slowdown in broad money growth, indicating a need for businesses to manage their cash flow effectively.
- Diversify your deposits: The decline in foreign currency deposits suggests that businesses should consider diversifying their deposit options to mitigate risk and take advantage of relatively higher interest rates.
- Monitor your liquidity: The RBM’s Liquidity Reserve Ratio (LRR) adjustment has constrained deposit creation, highlighting the importance of monitoring liquidity levels and adjusting strategies accordingly.
The latest Financial and Economic Review published by the RBM has revealed a sharp deceleration in broad money growth to 33.9 percent in the first quarter of 2025, indicating the effectiveness of the central bank’s monetary policy. The annual growth rate of broad money (M2), which measures the total supply of money in the economy, slowed from 45.1 percent in the previous quarter. The RBM attributes the M2 growth deceleration to its continued tight monetary policy stance, with the policy rate maintained at 26 percent.
The development is also attributed to lingering effects of the upward LRR adjustment in the previous quarter, which aims to mop up excess liquidity from the financial system. The report shows that the slowdown was primarily driven by a year-on-year decline in foreign currency deposits, which fell by K80.2 billion in the first quarter of 2025. However, demand deposits, term deposits, and currency outside banks recorded yearly increases of K590.1 billion, K586.2 billion, and K271.6 billion, respectively.
Consequently, their respective contributions to annual M2 growth were 14.6, 12.5, and 6.7 percentage points, all lower than contributions that were recorded in the final quarter of 2024. In contrast, the contribution of foreign currency-denominated deposits declined to minus 2 percentage points in the quarter from minus 1.4 percentage points in the preceding quarter. On a quarterly basis, M2 grew by K60.4 billion, representing a modest 1.1 percent increase to K5.4 trillion in the first quarter of 2025.
The central bank said quarterly growth was driven by increases in term deposits and currency outside banks, which rose by K76.9 billion and K73.5 billion, respectively. Economics Association of Malawi President Bertha Bangara Chikadza explains that this has manifested into lower outcomes in demand deposits, term deposits, and foreign currency deposits in the first quarter of 2025. The outturn reflects the effect of the upward adjustment of the LRR during the fourth quarter of last year, which constrained the deposit creation process by commercial banks and subsequent growth of money supply. As the business community in Malawi navigates this new economic landscape, it is essential to prioritize cash flow management, deposit diversification, and liquidity monitoring to stay competitive and drive growth.
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