Bankers Association welcomes RBM’s steps towards easing interest rate thresholds

BAM president Phillip Madinga

* We have already been taking positions to align with the government’s calls to increase access to credit by the private sector—BAM president Phillip Madinga

By Duncan Mlanjira

The Bankers Association of Malawi (BAM) has welcomed the decision Reserve Bank of Malawi’s Monetary Policy Committee (MPC) to take gradual steps towards easing interest rate thresholds in the market, seeing it as the beginning of a return to market-driven economic realignment.

BAM president Phillip Madinga said “the reduction, driven by a drop in Treasury Bill yields, and falling inflation is expected to signal a modest easing in the cost of funds and market conditions”.

He added that this will ease loan repayments and providing more room for borrowing for production: “As banks, we have already been taking positions to align with the government’s calls to increase access to credit by the private sector.”

BAM was reacting to the statement from MPC’s first meeting of 2026 held on March 4-5, from which the Committee reports that it decided to reduce the policy rate by 200 basis points from 26.0% to 24.0% and maintained the Lombard rate at 20 basis points above the policy rate, and the liquidity reserve requirement (LRR) ratios at 10.0% for local currency deposits and 3.75% for foreign currency deposits.

MPC chairperson, RBM Governor George Partridge, reports that they made this decision after observing a gradual decline in inflation, saying: “The current inflation outlook allows for a cautious reduction in the policy rate, while maintaining a sufficiently tight monetary policy stance, to continue steering inflation towards the medium‑term objective of 5.0%.”

On headline inflation, Partridge reported it decreased to 27.7% in the fourth quarter of 2025 from 28.1% in the previous quarter and 29.2% in the corresponding quarter of 2024.

“Meanwhile, headline inflation declined further to 24.9% in January 2026,” reports Partridge. “This improvement in headline inflation was mainly driven by lower food prices, following Government interventions to boost maize supply.

“However, prices of non-food items such as fuel and electricity increased, which pushed up non-food inflation. These developments largely reflect higher production and import costs rather than strong demand in the economy.”

The MPC also indicates that the inflation outlook for 2026 is improving — supported by several factors, that include the food supply gap expecting to narrow further following anticipated improvement in production for the 2025/26 growing season and sustained Government food relief interventions.

“Furthermore, fiscal operations are expected to support macroeconomic stability as revenues improve following the introduction of new tax measures, while expenditures remain focused on priority areas. This will help reduce the fiscal deficit and moderate the growth of money supply.”

On external environment, the RBM Governor reports that “the global economy is expected to continue growing in 2026 — however, international oil prices have recently increased due to geopolitical tensions”.

“The Committee noted that higher oil prices and anticipated supply chain disruptions could adversely affect the domestic economy. The MPC will continue to closely monitor these developments to ensure that these shocks do not reverse the disinflationary process.”

He further announces that “domestic economic activity is expected to improve in 2026, with growth projected at 3.8% from 2.7% in 2025. This outcome is expected from improved performance in sectors such as agriculture, tourism, mining, and manufacturing.

“Growth in money supply slowed down, reflecting that earlier monetary policy tightening helped ease demand pressures. The banking sector remains stable, with low levels of non-performing loans.

“While the country continues to face foreign exchange challenges, the authorities remain committed to maintaining stability and ensuring orderly conditions in the foreign exchange market.”

Partridge concludes by reporting that MPC’s earlier adjustments to the policy stance “have helped reduce inflation and strengthen price stability” and that the 200-basis points reduction in the policy rate “is a cautious and measured adjustment, reflecting the improving inflation outlook”.

“At this level, the policy rate will support the process of guiding inflation toward the medium-term target of 5.0%. The Reserve Bank of Malawi will continue to take necessary steps toward attaining price stability and ensuring that inflation remains on a downward path.”