By Burnett Munthali
The Reserve Bank of Malawi’s (RBM) Monetary Policy Committee (MPC) has decided to maintain the Policy Rate at 26 percent following its latest review on November 4. The Policy Rate, a short-term benchmark rate set by the central bank, serves as a primary instrument for regulating borrowing costs and stabilizing the economy.
In a statement released on Friday, MPC Chairperson Wilson Banda highlighted that the decision was based on recent economic conditions and monetary forecasts. Alongside holding the Policy Rate steady, the MPC has retained the Lombard Rate at 20 basis points above the Policy Rate and maintained the Liquidity Reserve Requirement (LRR) for foreign currency deposits at 3.75 percent.
However, the Committee opted to tighten controls on domestic currency deposits, increasing the LRR ratio by 125 basis points to 10 percent. This move is aimed at curbing inflationary pressures tied to excessive money supply growth.
“In making this decision, the Committee noted that although inflation has remained elevated, there are strong prospects of slowing down from the fourth quarter of 2024, on account of favorable base effects,” said Banda.
The MPC expressed concern over the ongoing rapid expansion of the money supply, noting its potential risks to inflation stability. By raising the LRR for domestic currency deposits, the Committee aims to restrict money supply growth and support a gradual reduction in inflation over the short to medium term.
This latest policy stance underscores the Reserve Bank’s commitment to balancing economic growth with price stability, particularly in an environment marked by persistent inflationary challenges. With these measures in place, the MPC is hopeful that Malawi’s inflation trajectory will gradually improve, contributing to greater economic resilience in the coming months.
