Economists have described the Reserve Bank of Malawi’s (RBM) decision to maintain the policy rate at 26 percent as a ‘cautious’ approach that realises the existing inflation risk, especially on rising maize prices.
Apart from maintaining the policy rate, the Monetary Policy Committee (MPC) also maintained Lombard rate at 20 basis points above the policy rate and the Liquidity Reserve Requirement at 10 percent for local currency deposits and 3.75 percent for foreign currency deposits.
Reads the MPC statement in part: “In making this decision, the MPC acknowledged the decline in inflation from 30.7 percent in February to 27.1 percent in June 2025.
“However, the committee observed that the recent decline is not sufficient; hence, the current stance is necessary to sustain the downward trend in inflation.”
In an interview yesterday, University of Malawi associate professor of economics Gowokani Chijere Chirwa observed that even though inflation is going down, high money supply and re-emerging maize price pressure still exert pressure on inflation outlook.
He said: “There are still other issues to consider, for example, the amount of money [kwacha] in circulation is still going up.
“With the elections coming, even more money is likely to enter the economy. When people have more money to spend, prices of goods can go up too.”
In a separate interview yesterday, Business Partners International country manager Bond Mtembezeka observed that upside risks of inflation remain strong largely due to continued instability of fuel and foreign exchange supply; hence, the need for RBM to be cautious.
He said: “I agree with MPC to maintain it for now and take a wait and see stance. The reason being upside risks to inflation are strong. Fuel and forex are still an issue and economic agents are resorting to black markets whose costs are being passed on to the consumer.”
Meanwhile, financial analyst Brian Kampanje said although inflation rate has dropped between April and June from 29.2 percent to 27.1 percent, there is evidence that maize prices will go up soon and exert inflationary pressure, which prompted authorities to be cautious.
He said: “The maize prices have started picking up as traders have almost mopped up all excess maize and prices have started soaring.
“Malawi currently has a huge maize deficit, which will push up maize prices from October 2025 unless import processes are completed in time,” he said.
But economic consultant Booker Matemvu, while describing the decision as positive due to high money supply, said there is need for fiscal policy interventions.
He said tight monetary policy stance could potentially restrict private sector growth.
“The tight monetary policy should be matched with a tight fiscal policy that will see reduced local market borrowing and unnecessary fiscal expenditures,” he said.
Meanwhile, market analyst Cosmas Chigwe described the decision as a cautious approach, adding that loosening the policy stance prematurely would be risky considering that inflation threat remains.
RBM Deputy Governor Kisu Simwaka is quoted as having said the MPC due to the ease in inflation, would assess progress based on the totality of the incoming data, the evolving inflation outlook and balance of risks.
The policy rate has been maintained at 26 percent for more than a year, leaving commercial banks borrowing rates as high as 36 percent.
