Interest rates ease as govt cuts borrowing

Government’s continued shunning of Treasury Bills (T-bills) is easing lending rates with banks cutting their February reference rate by 50 basis points from 25.20 percent to 24.70 percent. The reduction comes a month after another 10 basis points drop in January to 25.20 percent from 25.30 percent in December 2025 as T-bills yields (interest) dropped following Treasury’s decision to reject a number of bids. Reads a notice by Standard Bank: “We wish to inform you that the reference rate which is also the base lending rate for February 2026 is 24.70 percent down from 25.20 percent the previous month.” In an interview, the Bankers Association of Malawi President Phillip Madinga, said the slight change follows the monthly review, driven by a drop in Treasury bill yields.

Madinga said: “The all-type average yield decreased, due to non-allotment on the 364-day tenor. The reference rate, reviewed monthly, aligns with economic indicators like inflation, liquidity and deposit costs. “This cut slightly eases loan servicing for clients.

The adjustment signals modest easing in cost-of-funds and market conditions. As the benchmark for loan pricing, even small changes influence lending rates and credit costs.” University of Malawi economics lecturer Edward Lemani attributed the easing reference rate to government reduced appetite to borrowing through T-bills, saying although the drop is not significant, it could ease public debt pressure and improve private sector credit access if sustained. Lemani said: “Reduced government borrowing may ease debt pressures and gradually lower the crowding-out of private sector credit.

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However, rate cuts should be sustained and, more importantly, deliberately targeted toward productive sectors. “Such targeted easing could stimulate domestic production, strengthen export capacity, and ultimately address several of the country’s structural economic challenges.” Since the onset of this year, government has rejected T-bills bids totalling K540 billion in four to five weeks that led to the yields of 90 days tenor dropping from 16 percent to 15 percent while the bids for 364 days and 182 days tenors were rejected. Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha said the rejection is a deliberate move to induce a decline in interest rates and reduce domestic borrowing and interest rate payment.

He said: “We are rejecting T-bills bids and we will continue rejecting them. This is meant to cut interest rates, to reduce domestic borrowing and enable banks to increase their lending to the private sector. “If we reduce borrowing, we will be reducing our debt burden, reduce interest payment and guarantee increased private sector credit, which could spur economic growth.” In an earlier interview, Reserve Bank of Malawi (RBM) spokesperson Boston Maliketi Banda said government seeks to reduce its appetite for high borrowing costs amid elevated domestic debt levels at about K14 trillion, which is 65 percent of the total public debt at K22 trillion, an equivalent of 86 percent of gross domestic product (GDP).

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