The Reserve Bank of Malawi cut its benchmark policy rate by 200 basis points to 24% on March 5, the first rate adjustment in almost two years and the first monetary policy decision under new Governor George Partridge, as headline inflation fell for three consecutive months to reach 24.9% in January. The Monetary Policy Committee described the move as “cautious and measured,” a signal that it is easing gently rather than pivoting. With commercial lending rates still around 37%, public debt above 90% of GDP, and a chronic shortage of foreign exchange still throttling the real economy, the cut is a necessary first step rather than a turning point.
- Inflation peaked above 32% in 2024 and has been stuck above 20% since mid-2022. The January 2026 reading of 24.9% was reached after falling from 28.1% in Q3 2025 to 27.7% in Q4 2025, driven largely by improved maize supply following government interventions to stabilise food prices. Non-food inflation remains elevated, pushed by fuel costs that rose nearly 42% in January when petrol reached 4,965 kwacha a litre, and electricity tariffs that climbed 12% in the same month under a multi-year regulatory increase plan.
- The RBM is targeting a medium-term inflation rate of 5%, meaning the distance still to travel is enormous. Even with the cut, commercial bank lending rates remain in the range of 30% to 37%, levels that the Economics Association of Malawi says have historically choked private sector borrowing and investment. The Bankers Association of Malawi, whose president Phillip Madinga welcomed the move, said banks are preparing to increase private sector lending as conditions ease.
- The RBM projects GDP growth of 3.8% in 2026, up from 2.7% in 2025, supported by stronger activity in agriculture, tourism, mining, and manufacturing. That projection assumes no further external shocks and continued food price stabilisation, both fragile assumptions in an economy as exposed as Malawi’s.
- The foreign exchange crisis is the deeper structural problem the rate cut cannot solve. The official exchange rate has been largely flat at around 1,730 kwacha to the US dollar, but businesses report acute shortages of dollars for import payments. Manufacturers Association chair Gloria Zimba put the bind plainly: firms have kwacha at bank but are delaying import bill payments because forex is unavailable. An interest rate cut cannot create dollars, close the trade gap, or restore reserves.
- Malawi’s four-year $175 million IMF Extended Credit Facility, approved in November 2023, automatically terminated in May 2025 after no programme review was completed within 18 months. President Peter Mutharika, returned to power after the September 2025 election, has signalled intent to negotiate a new IMF programme and resume debt restructuring. Without IMF cover, Malawi’s access to concessional financing and the credibility signal it provides to other lenders remain limited.
The strategic logic of the cut is sound even if the near-term impact is limited. Lower policy rates reduce the government’s own interest bill on domestic debt over time, and if they succeed in crowding commercial banks out of Treasury bills and into private sector lending, the productive economy benefits. But Malawi’s binding constraint is not the price of money. It is the availability of foreign exchange, the credibility gap with the IMF and multilateral lenders, and debt at over 90% of GDP that leaves the government with almost no fiscal room. Governor Partridge’s appointment in January and his first policy decision in March signal a new chapter in RBM management, but the structural conditions those decisions must navigate have not yet shifted. The rate cut is the right move in the right direction. Whether the direction leads anywhere depends on the IMF negotiations and the forex situation, neither of which a 200-basis-point cut changes on its own.
The Bigger Picture: Malawi’s monetary easing is real but it lands in an economy where the plumbing is still broken. Inflation at 24.9% remains one of the highest in sub-Saharan Africa. Commercial lending rates at 30% to 37% make productive borrowing unaffordable for most businesses even after the cut. Public debt above 90% of GDP leaves no fiscal buffer. And the forex shortage that delays import payments, strains manufacturers, and prevents foreign investors from repatriating returns is a structural problem that monetary policy cannot fix. What the cut does do is signal that Malawi’s monetary authorities believe the worst of the inflation crisis is behind them and are beginning the long, cautious journey back toward growth-supportive policy. That signal matters for business confidence and for the IMF negotiations that are the real prize. A new IMF programme, if secured, would unlock concessional financing, provide a credibility anchor for investors, and give Malawi the foreign exchange support it urgently needs. Until then, the rate cut is a necessary but insufficient first step.
Source: Centre for Investigative Journalism Malawi / Maravi Express
