The Reserve Bank of Malawi (RBM) has withdrawn K80.6 billion from the financial market through open market operations (OMO) last week. This move is part of the central bank's efforts to implement a tight monetary policy and contain inflation. According to RBM figures, the central bank withdrew K68.5 billion through overnight operations, K10 billion through 62-day agreements, and K2.1 billion through 60-day agreements.
The liquidity withdrawal comes as inflation in Malawi continues to ease, falling to 19.4 percent in September 2026, its first time below 20 percent since May 2022. Despite the declining inflation rate, the RBM has maintained an elevated policy rate of 24 percent to contain inflation. The central bank's move has been welcomed by some economists, who see it as a commitment to maintaining a tight monetary policy stance.
Bertha Phiri, Executive Director of the Malawi Economic Justice Network, said the liquidity withdrawal signaled the central bank's commitment to containing inflation. She noted that by withdrawing money, the RBM reduces aggregate demand and slows growth in money supply, which has been a key driver of inflation in Malawi. However, Phiri also warned that the intervention could increase borrowing costs for businesses, particularly small enterprises.
Economist Marvin Banda offered a different perspective, suggesting that the liquidity withdrawal should be assessed against the country's broader fiscal challenges. He argued that government borrowing had contributed to the pressures the central bank was trying to contain. Banda questioned whether the withdrawal addresses genuine excess liquidity or merely tightens an already difficult credit environment.
The government projects that headline inflation will decline to 15 percent by the end of 2026, according to the 2026-27 national budget. However, the International Monetary Fund (IMF) has a different forecast, projecting Malawi's inflation to average 21.9 percent in 2026 before increasing to 25 percent in 2027.
The RBM's liquidity withdrawal also comes against a backdrop of limited Treasury Bill auctions and no applications or allotments for Treasury bills during the week under review. The two-year Treasury Note attracted applications amounting to K70 million, but no allotment was made.
The central bank's move has implications for businesses and the broader economy. While it may help contain inflation, it could also increase borrowing costs and slow down economic growth. The RBM will need to carefully balance its monetary policy stance to achieve its inflation targets while also supporting economic growth.
Key points
- The Reserve Bank of Malawi withdrew K80.6 billion from the market through open market operations.
- The move is part of the central bank's efforts to contain inflation and maintain a tight monetary policy stance.
- The liquidity withdrawal may have implications for businesses and the broader economy, including increased borrowing costs and slower economic growth.
