‘RBM policy lending rate cut to 24% signals gradual economic stabilisation and opens path for private sector growth’—DCG Chief Economist

DCG Chief Economist Chifipa Mhango

* The rate reduction signals that Malawi’s macroeconomic environment is gradually stabilising after a prolonged period of high inflation and tight monetary conditions

* Recent data indicates that headline inflation declined to about 27.7% in the fourth quarter of 2025 from 28.1% in the previous quarter

* And further fell to around 24.9% in January 2026, largely supported by improved food supply conditions and government interventions aimed at stabilising maize prices

By Duncan Mlanjira

The decision by the Reserve Bank of Malawi (RBM) to reduce the policy lending rate from 26%-24%, representing a 200 basis-point cut, marks an important turning point in Malawi’s monetary policy trajectory and reflects growing confidence that inflationary pressures are beginning to moderate.

This is observed by Chief Economist of Don Consultancy Group, Chifipa Mhango, in reaction to the announcement by the Reserve Bank of Malawi’s Monetary Policy Committee (MPC), whose first meeting of 2026 held on March 4-5, it decided to reduce the policy rate.

The MPC chairperson, RBM Governor George Partridge, indicated that 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.

The DCG Chief Economist thus attests to that “the rate reduction signals that Malawi’s macroeconomic environment is gradually stabilising after a prolonged period of high inflation and tight monetary conditions”.

“Recent data indicates that headline inflation declined to about 27.7% in the fourth quarter of 2025 from 28.1% in the previous quarter, and further fell to around 24.9% in January 2026, largely supported by improved food supply conditions and government interventions aimed at stabilizing maize prices.”

Mhango further contends that “this downward trend in inflation provided the monetary policy space for the Central Bank to cautiously begin easing borrowing costs while maintaining a sufficiently tight stance to prevent renewed price pressures”.

“The reduction of the policy rate to 24% is a strong indication that monetary authorities believe the inflation outlook is improving. It demonstrates prudent and responsive monetary policy management that seeks to balance inflation control with the need to stimulate economic activity.”

“Lowering the policy rate is expected to gradually reduce commercial bank lending rates, which in Malawi have typically ranged between 30% and 35%, a level that has historically constrained borrowing and investment in the private sector.

“As lending conditions ease, businesses will gain improved access to credit, which is essential for expanding productive capacity, financing working capital, and supporting entrepreneurship.”

Mhango also observes that RBM projects that economic growth could rebound to about 3.8% in 2026, up from approximately 2.7% in 2025, supported by stronger activity in agriculture, tourism, mining, and manufacturing.

“However, this will require a policy mix support,” he says. “While the rate cut alone cannot transform the Malawi economy, it is a critical signal that Malawi is gradually moving toward a more supportive macroeconomic environment for growth.

“One of the most significant expected outcomes of the rate reduction is its potential impact on small, medium & micro enterprises (SMMEs), which form the backbone of Malawi’s private sector.

“High borrowing costs have long limited the ability of SMMEs to invest in machinery, expand production, and participate meaningfully in industrial value chains. Lower interest rates will help ease these constraints.”

Mhango emphasizes that “affordable credit is one of the most important catalysts for industrialisation,” adding that “when borrowing costs decline, SMMEs are better positioned to invest in production, adopt new technologies, expand manufacturing capacity, and create employment opportunities”.

“With improved access to credit, Malawi’s emerging enterprises could begin to scale operations in sectors such as agro-processing, manufacturing, trade, and services, contributing to a stronger domestic industrial base.

“This shift is particularly important for Malawi’s long-term development strategy, as industrialisation remains essential for export diversification, value addition, and sustainable economic growth.

“The RBM’s decision reflects a carefully calibrated monetary policy approach that acknowledges improving inflation dynamics while maintaining vigilance against macroeconomic risks such as exchange rate volatility, imported inflation, and global commodity price pressures.”

Mhango further says the RBM “has demonstrated a commitment to data-driven policy decisions, ensuring that monetary policy adjustments are aligned with prevailing economic conditions”.

“The policy shift indicates that Malawi’s monetary authorities are beginning to transition from a strictly contractionary stance toward a more balanced approach that supports both price stability and economic growth.”

While the rate reduction is a positive signal, Mhango cautions that “monetary easing alone cannot fully unlock Malawi’s economic potential” and to maximise the benefits of the policy adjustment, he advises the following strategic priorities:

* Commercial banks must pass on the benefits of lower policy rates to businesses and households through reduced lending rates;

* Government should continue its efforts to strengthening fiscal discipline to complement monetary policy and maintain macroeconomic stability;

* Support for productive sectors such as agriculture, manufacturing, and mining must be intensified to expand the country’s export base;

* Targeted financing mechanisms for SMMEs should be enhanced to accelerate industrialization and job creation; and

* Foreign exchange generation and export diversification must remain a central policy focus to reduce structural external vulnerabilities.

He concludes by saying the “sustained economic recovery will depend on policy coordination between monetary authorities, fiscal policy managers, and the private sector”.

“The reduction in the policy rate is an encouraging step toward economic recovery. However, sustained growth will require consistent policy implementation, improved investment conditions, and stronger support for productive sectors that drive Malawi’s industrial transformation.”

Meanwhile, the Bankers Association of Malawi (BAM) has also welcomed-rbms-steps-towards-easing-interest-rate-thresholds/, saying it is expected to signal a modest easing in the cost of funds and market conditions.

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