The Reserve Bank of Malawi (RBM) has raised the Lombard Rate from 0.2 to 2 percentage points to manage liquidity amid inflation risks. This move is expected to increase the cost of borrowing, affecting businesses and consumers. Economist Velli Nyirongo warns that the situation appears delicate, with businesses dependent on imported materials and fuel likely to suffer high operational costs.
The current inflation trend in Malawi dropped to 20.1 percent in the third quarter from 22.9 percent in the previous quarter. However, Nyirongo notes that this drop will not suppress the cost of living, as inflation is also driven by external factors such as high fuel prices and potential weather-related food shortages. The RBM's decision aims to contain inflation risks but may have a limited impact.
The Monetary Policy Committee (MPC) assessment reveals that annual broad money growth moderated to 19.7 percent in the third quarter of 2026 from 21.2 percent in the previous quarter. Private sector credit growth slowed to 21.7 percent from 31.3 percent, while banking system liquidity tightened. Excess reserves averaged K82.4 billion per day, down from K191.3 billion per day.
Despite the drop in inflation, the MPC notes that there is a risk to money supply growth, with recourse to the Lombard facility rising to an average of K72.3 billion per day from K25.3 billion per day. Nyirongo emphasizes the importance of coordination with the government to manage food supply risks, support agricultural production, and maintain fiscal discipline.
The recent decision by the RBM is expected to have a limited impact on inflation, which is also driven by external factors. Nyirongo suggests that the move supports the fight against inflation but will not be enough on its own. The economist stresses the need for the government and RBM to work together to address the underlying causes of inflation.
Industry players and consumers are advised to brace for tough times, including elevated prices. The high cost of borrowing and operational costs will limit business expansions and entry of new businesses. Consumers will also feel the pinch, with a likely increase in the cost of living.
The RBM's decision aims to mitigate the risks associated with high inflation and money supply growth. However, the impact of the decision will depend on the government's ability to manage food supply risks and maintain fiscal discipline. The situation remains delicate, and stakeholders must work together to address the economic challenges facing Malawi.
Key points
- The Reserve Bank of Malawi has raised the Lombard Rate to manage liquidity amid inflation risks.
- The current inflation trend in Malawi dropped to 20.1 percent in the third quarter.
- Coordination with the government is crucial to manage food supply risks and maintain fiscal discipline.
