Malawi Confederation of Chambers of Commerce and Industry (MCCCI) says local businesses are struggling to match their counterparts in terms of competitiveness due to high cost of finance in the country.
MCCCI business environment director Lucky Mfungwe, speaking during the Reserve Bank of Malawi (RBM) Monetary Policy Committee Technical Meeting in Blantyre yesterday, said while the policy rate in Malawi has been maintained at 26 percent, it is much lower in Tanzania at 5.75 percent, Zambia at 14.5 percent and Mozambique at 10.25 percent.
He said this has made lending rates exceedingly high, averaging between 30 and 35 percent, thereby limiting access to credit for the private sector, especially for small and medium enterprises (SMEs) which account for over 60 percent of employment in Malawi.
Said Mfungwe: “While the high rate aims to anchor inflation which peaked at 33 percent in 2024, it also constrains private sector growth and economic recovery, underscoring the need for complementary measures to support businesses alongside monetary tightening.
“Moreover, businesses that import raw materials or finished goods are facing higher operating costs, not only from high interest but also from exchange rate pressures and imported inflation. This has undermined competitiveness and has led to reduced output, closures, for businesses.”
MCCCI proposed strong legal and policy instruments to implement a differential policy rate system as a short to medium-term solution for Malawi to cushion the private sector, fast-tracking the implementation of complementary measures to support productive and export-oriented sectors and investing in food production through climate smart agriculture to ensure surplus food production to curb inflation.
Inflation surged from around seven to nine percent in 2010/12 to approximately 28 percent by 2014, driven by currency devaluation and external shocks before temporarily stabilising at eight to 10 percent between 2017 and 2020 before rising sharply again to over 30 percent in 2023.
Correspondingly, the policy rate followed an upward trajectory, peaking at 25 percent in 2014 and again holding at 26 percent from 2023 onward, reflecting the central bank’s attempts to curb inflation.
In his contribution, National Bank of Malawi plc chief risk officer Charles Ulaya urged RBM to consider SMEs who are also struggling with access to finance due to the high cost of finance.
RBM director of capital markets and microfinance supervision Mark Lungu conceded that the environment is difficult for business to thrive and observed that the central bank is working around the clock to bring down the policy rate.
“At the level of inflation that we have at the moment, it is very, very difficult for any businesses to thrive. From the central bank point of view, the target is to ensure we bring down inflation and stabilise it at lower rates because that’s the only time that businesses will make sense,” he said.
Commenting on the differential rates, Lungu said while RBM has had a debate within the banks on whether that is the route to go, their preference is to come up with well-structured development finance institutions.
Meanwhile, RBM has revised upwards the 2025 annual average inflation rate forecast from 27.4 percent to 28.5 percent, citing persistent upside risks to food prices with market inflation projection indicating that it will be at 32.4 percent by December 2025.
The forum was held a few days after the Monetary Policy Committee (MPC) of the RBM maintained at 26 percent the policy rate, the rate at which commercial banks borrow from the central bank as lender of last resort.
The central bank also maintained the Lombard rate at 20 basis points above the policy rate and Liquidity Reserve Requirement ratio at 10 percent for domestic deposits and 3.75 percent for foreign currency deposits.
