Malawi’s broad money (M2) supply has accelerated again, complicating calls from local economists for the Reserve Bank of Malawi (RBM) to cut the policy rate at its forthcoming Monetary Policy Committee (MPC) meeting scheduled for later this month.
In its November 2025 Monthly Economic Review, the RBM reports that annual M2, the comprehensive measure of total amount of money available in an economy, increased to 44.4 percent from 42.7 percent in October, reflecting renewed liquidity expansion even as inflation shows signs of easing.
The acceleration comes at a delicate moment, with economists increasingly arguing that tight monetary policy has outlived its usefulness in an economy where price pressures are largely supply-driven.
RBM data show that on a month-on-month basis, money supply increased by K56.8 billion to K7.3 trillion in December.
The expansion was mainly driven by higher demand deposits and foreign currency deposits, which rose by K145.4 billion and K14.3 billion, respectively as economic agents increased transactional balances, according to the report.
It further indicated that the currency outside banks and time deposits declined, suggesting that liquidity growth is increasingly concentrated in transactional balances rather than longer-term savings.
On the sources side, net domestic assets, particularly claims on government, remain the dominant driver of money growth, while net foreign assets stayed deeply negative.
Analysts say this pattern underscores the close link between fiscal operations and liquidity conditions, a dynamic that has historically complicated Malawi’s monetary policy calibration.
Last week, economists suggested that conditions were ripe for a cautious policy rate cut.
Headline inflation has fallen from 35 percent in January 2025 to 26 percent by December 2025, largely anchored by easing food prices following maize supply interventions through imports from neighbouring Zambia.
In an interview on Sunday, University of Malawi economics lecturer Edward Leman observed that the recent inflation trajectory exposes the limits of demand compression.
He said: “The standard monetary policy framework can be questioned in our case.
“Tight monetary policy has not been as effective as one would ideally expect, particularly when inflation declines are being driven by food supply rather than broad-based disinflation.”
Speaking separately, Mzuzu University economics lecturer Christopher Mbukwa echoed the same view, questioning whether high interest rates have delivered results that direct market interventions achieved.
“It took maize market intervention to bring inflation down in ways a heightened policy rate could not do in over three years,” he said, calling for greater focus on supply-side dynamics.
Economics Association of Malawi president Bertha Bangara-Chikadza cautioned in an interview that inflation decline remains uneven.
“Although inflation has fallen, non-food inflation is still rising and money growth remains high. That means the MPC must balance supporting recovery with safeguarding price stability,” she said.
RBM Deputy Governor for operations Kisu Simwaka is on record as having said the current trend is a sign that inflation has “turned the corner,” raising expectations of eventual easing of the policy rate.
With non-food inflation still elevated at 26.5 percent and the exchange rate fragile, policymakers face the risk that premature easing could undo recent gains.
In its latest Market Intelligence Report, the RBM projected a favourable near-term inflation outlook, citing moderating food prices and improved resilience to external shocks.
