Navigating Monetary Tides: How Malawi’s Central Bank Decision Impacts Business Growth

Key Business Points

• Slow Down in Broad Money Supply Growth: Malawi’s broad money supply growth has slowed for the third consecutive month, reflecting the impact of tight monetary policy and the lingering effects of the 2023 currency devaluation.
• Shift in Money Supply Composition: The deceleration is attributed to lower growth in demand deposits, currency in circulation, and foreign currency-denominated accounts, indicating a growing sensitivity to policy signals.
• Import Demand Concerns: The decline in foreign currency deposits raises concerns about Malawi’s external position and the country’s ability to meet import demands, particularly for fuel, fertiliser, and industrial inputs.

Malawi’s economy is facing a delicate balance between stabilizing the currency and supporting economic activity. The Reserve Bank of Malawi (RBM) has implemented tight monetary policy, which has slowed the growth of the broad money supply for the third consecutive month. According to the RBM, the annual broad money (M2) growth declined to 33.9 percent in March 2025, down from 37.8 percent in February and 47.8 percent in March 2024. This deceleration is largely attributed to lower growth in demand deposits, currency in circulation, and foreign currency-denominated accounts.

TheRBMs’ data shows that demand deposits rose by K590.1 billion in March 2025, down from K630.7 billion in February, while currency in circulation increased by K271.6 billion compared to K298.0 billion in the previous month. Foreign currency-denominated deposits, however, declined by K80.2 billion, widening from a K27.2 billion drop in February. Term deposits, which include savings and fixed deposits, showed modest resilience, rising by K586.2 billion in March from K569.6 billion in February.

The rise in cash demand was linked to the start of the agricultural marketing season, which traditionally sees rural economies shift toward cash-based transactions. However, term deposits fell by K13.6 billion during the month, as agro-traders reportedly withdrew funds to finance crop purchases. Foreign currency holdings also declined by K8.2 billion, amid lower external inflows and rising import needs. This drop in foreign currency deposits raises concerns about Malawi’s external position and the country’s ability to meet import demands, especially for fuel, fertiliser, and industrial inputs.

Economists and financial analysts have noted the shifting composition of Malawi’s money supply as a sign of growing sensitivity to policy signals. The continued tightening of liquidity is having the intended effect of slowing demand-side inflation, but there is a need to watch for signs of stress in sectors that rely on working capital. The RBM faces a delicate balancing act between stabilising the currency and supporting economic activity, particularly with inflation risks still elevated and demand for liquidity expected to rise as the harvest season peaks. As one economist noted, "The government must contain the growth in monetary supply to ease inflationary pressures on the local economy." With global financial multilateral institutions such as the World Bank watching Malawi’s economic developments, the country’s business community must stay informed about the economic landscape and its implications for investment opportunities and local entrepreneurship.

Source Link

What are your thoughts on this business development? Share your insights and remember to follow us on Facebook and Twitter for the latest Malawi business news and opportunities. Visit us daily for comprehensive coverage of Malawi’s business landscape.