Malawi’s broad money supply (M2) surged by 51.3 percent year-on-year in October 2024, raising alarms over potential inflationary pressures that could erode the purchasing power of ordinary citizens.
The latest data from the Reserve Bank of Malawi reveals a sharp acceleration in broad money growth, up from 48.8 percent in September 2024 and significantly higher than the 28.3 percent recorded in October 2023.
The October 2024 issue of the Monthly Economic Review attributes the growth to a rise in demand deposits and currency outside banks, which increased by K733.9 billion and K234.9 billion, respectively.
On a month-on-month basis, M2 grew by K141.7 billion (2.9 percent), reaching a total of K5.0 trillion by October. This increase was supported by K113.9 billion in demand deposits, K60.5 billion in currency outside banks, and K28.6 billion in term deposits.
Demand deposits alone now total K1.9 trillion, while currency outside banks amounts to K684.4 billion.
The surge in currency outside banks is directly tied to the need for cash to procure farming inputs, such as seeds and fertilisers, for the upcoming planting season, according to RBM.
This sharp increase in demand deposits and currency outside banks has raised concerns about its impact on inflation.
While demand deposits significantly increased, foreign currency-denominated deposits decreased by K61.4 billion, falling to K623.0 billion. This reflects a wave of withdrawals by economic agents who needed to access foreign currency for imports amidst ongoing foreign exchange shortages.
The data also shows that the year-on-year growth of term deposits and foreign currency denominated deposits moderated to K199.6 billion and K542.1 billion, respectively, in October 2024, compared to K274.6 billion and K569.3 billion in September.
This slowdown in deposit growth suggests that Malawians are holding more cash in hand rather than saving or investing, further stoking fears that inflationary pressures could increase as demand outpaces supply.
The immediate concern for many is whether the increased circulation of money will lead to higher prices, according to local economic analysts.
Scotland-based Malawian economist Velli Nyirongo cautioned that inflationary pressures are likely to increase, particularly if the growth is not matched by a corresponding increase in the production of goods and services.
“Inflation erodes value of money, making it harder for families in vulnerable groups to meet basic needs such as food, healthcare, and education,” he said in a WhatsApp response.
On the decline in forex reserves, Nyirongo noted that a reduction in reserves would weaken “the economy’s ability to defend the kwacha, which could potentially lead to currency depreciations and higher import prices”.
In the July 2024 issue of the Malawi Economic Monitor, the World Bank observed that the sustained money growth and continued supply constraints “undercut efforts to control inflation”.
Inflation has since moderated from 32.4 percent in September to 27.3 percent in October following and improvement in supply-side factors, particularly the drop in maize prices.
