RBM cuts rate as marketswatch debt, forex pressures

For the first time since raising the policy rate to 26 percent in January 2024, the Reserve Bank of Malawi (RBM) has begun easing monetary policy, cutting the benchmark rate by 200 basis points to 24 percent. The move signals the central bank’s first step toward lowering borrowing costs after more than two years of tight monetary policy triggered by Malawi’s foreign exchange crisis and surging inflation. But the decision raises a key question for financial markets: does the rate cut mark the beginning of a sustained decline in interest rates and a broader economic recovery, or is it an early adjustment in an economy still facing fiscal and foreign exchange pressures?

The RBM’s Monetary Policy Committee said in a statement on Friday that it trimmed the policy rate — the rate at which commercial banks borrow from the central bank — following a drop in headline inflation to 24.9 percent in January 2026, down from 27.7 percent in the final quarter of 2025 and 29.2 percent a year earlier. Financial conditions, however, had already begun easing before the announcement. Treasury bill yields have fallen sharply since the start of the year.

The 364-day yield has dropped from about 26 percent to around 17.9 percent, while the 182-day yield declined from roughly 20 percent to about 15 percent. The 91-day yield has also eased from about 16 percent to nearly 12 percent. Commercial bank reference rates — the base for pricing loans to households and businesses — have also started declining, falling from 25.3 percent in December to 23.7 percent in March.

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Last week, Finance Minister, Economic Planning and Decentralisation Joseph Mwanamvekha told Parliament during the presentation of the 2026/27 National Budget that government expects inflation to decline to about 15 percent while the policy rate is projected to fall to around 18 percent over the medium term. Analysts say the durability of the easing cycle will depend heavily on fiscal discipline and the country’s fragile foreign exchange position. Reserve Bank auction data suggest authorities are already attempting to prevent government borrowing from locking in elevated interest costs.

Between early January and early March, investors submitted bids of roughly K1.1 trillion for Treasury bills. Treasury accepted only about K278 billion and rejected approximately K823 billion worth of bids, signalling an effort to push yields lower rather than absorb all available financing from the market. Commercial banks have also begun adjusting lending positions.

Bankers Association of Malawi president Phillip Madinga, who is also chief executive officer of Standard Bank Malawi, said banks had already been aligning with government calls to expand private-sector access to credit. In a statement shared on its Facebook page, the central bank said the rate reduction would lower borrowing costs for households and businesses.

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