The Reserve Bank of Malawi has trimmed its policy rate to 24% as inflation eases, but businesses say the foreign-exchange crunch is still the real handbrake on growth.
By Collins Mtika
Malawi’s central bank has lowered interest rates for the first time in two years, betting that inflation is finally losing steam.
For borrowers, that could mean slightly cheaper loans in the months ahead. For the broader economy, the move changes little: the shortage of dollars and a fractured foreign-exchange market still shape daily life far more than the price of credit.
On Thursday 5 March, the Reserve Bank of Malawi (RBM) cut its policy rate by 200 basis points, two percentage points, from 26% to 24%. The bank called the move “cautious and measured”, pointing to a gradual decline in inflation.
It was the first-rate adjustment since February 2024.
The policy rate is the RBM’s main lever on the cost of money. When it falls, commercial banks can usually borrow a bit more cheaply, Treasury-bill yields tend to ease, and lending rates may follow.
But in Malawi, where government borrowing dominates the local market, the pass-through to households and firms is rarely quick.
Banks have welcomed the signal. National Bank of Malawi announced a new reference lending rate of 23.70%, effective 5 March.
The Bankers Association has also argued that easing rates can reduce repayment pressure and create more room for productive borrowing.
For most households, the policy rate is felt in two places: loan repayments and savings. A lower benchmark rate can help borrowers, but savers are still taking a beating.
Inflation slowed to 24.9% year-on-year in January, down from 26% in December, according to Malawi’s National Statistical Office. The latest slowdown was driven largely by easing food inflation, even as non-food inflation picked up again.
Average savings deposits, meanwhile, have been stuck at about 4.27%, meaning cash in the bank loses value fast even in a month when inflation is easing.
And the cost of living remains under pressure. In January, petrol rose nearly 42% to 4,965 kwacha a litre and diesel about 41% to 4,945 kwacha after the energy regulator moved to prevent shortages.
Electricity tariffs climbed 12% in the same month under a multi-year increase plan approved by the Malawi Energy Regulatory Authority.
Those price rises do not come from people buying “too much”; they come from import costs, administered price changes and a tight supply of foreign currency. That is why a rate cut, which mostly targets demand in the economy, can only do so much.
Malawi’s central problem is not interest rates. It is foreign exchange. The official exchange rate has been largely flat, trading around 1,730 to the US dollar.
But in the real economy, for importers trying to pay suppliers, or manufacturers trying to source raw materials, the shortage of forex forces delays, rationing and, in many cases, reliance on more expensive informal channels.
International lenders have warned that Malawi’s reserves are critically low, leaving the country exposed to fuel, fertiliser and medicine shortages.
A joint World Bank–United Nations policy note released late last year said gross official reserves had fallen to less than two weeks of import cover, while net reserves have remained negative since 2020.
In February, the World Bank again flagged critically low reserves and a widening spread between the official and parallel exchange rates, a distortion that discourages formal trade and rewards the black market.
For businesses, the pinch is immediate. The Malawi Confederation of Chambers of Commerce and Industry’s review of 2025 described forex scarcity as the biggest constraint on operations, with firms reporting production stoppages and longer lead times.
Manufacturers Association chair Gloria Zimba captured the bind: “Although we have cash at bank, we are delaying payments of our import bills because of forex challenges.”
An interest-rate cut does not create dollars. It cannot close the trade gap, Malawi’s imports far outstrip exports, or restore confidence on its own.
The RBM’s move also lands in the shadow of a failed International Monetary Fund programme. Malawi’s four-year, $175‑million Extended Credit Facility, approved in November 2023, automatically terminated on 14 May 2025 after no review was completed within 18 months, the IMF says.
Since returning to power after the September 2025 election, President Peter Mutharika’s administration has signalled it wants a new IMF support programme and to complete debt restructuring talks.
But the numbers are grim. Public debt is now above 90% of GDP, according to Malawi’s finance ministry and Reuters.
With the IMF absent, Malawi loses not only financing but the “seal of approval” that often unlocks concessional funding from other partners. That leaves monetary policy trying to carry too much weight.
There are upsides. Lower rates can reduce government interest costs over time and, in principle, encourage banks to lend more to businesses instead of parking money in Treasury bills, especially as the government has been rejecting high-yield bids in an attempt to push borrowing costs down.
But for factories waiting on spare parts, pharmacies short of imported medicines, or small firms priced out by collateral demands, the relief from a 200-basis-point cut is limited.
Until Malawi rebuilds reserves, restores credibility with lenders, and fixes the foreign-exchange market so that exporters and importers can plan, the “price of money” will remain a second-order issue.
For millions of Malawians, the question is simple: not whether loans get 1% cheaper, but whether fuel is available, shops can restock, and salaries can keep up with prices.
