By Benadetta Chiwanda Mia:
Financial experts have said the Malawi money market has shown remarkable resilience and growth throughout 2024 despite facing challenging economic conditions.
Among other things, the year began with heightened activity in short-end Treasury bills (T-bills), driven by interest rate speculation.
However, following the recent Monetary Policy Committee’s option to use the liquidity reserve ratio (LRR) as a stabilising tool instead of raising the policy rate, investors shifted their preference to one-year T-bills, indicating confidence in medium-term interest rate stability.
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Furthermore, market liquidity remained high throughout the year, partly due to foreign exchange shortages, causing importers to retain the Kwacha.
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This has led to significant growth in non-negotiable money instruments, with fixed deposits increasing by over 50 percent since December 2023.
In an interview, Financial Market Dealers Association (Fimda) President Leslie Fatch said rising inflation and higher interest rates had transformed the money market into a attractive investment destination.
“The money market has been used as speculative short-term avenue as investors wait for investments at higher rates, highlighting the short-term nature of the investments, hence the observed performance,” Fatch said.
Fatch further suggested that the market’s trajectory would depend on interest rate trends.
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“Stable rates could push investors toward medium and long-term investments while anticipated increases might sustain the current focus on money market instruments,” he said.
Economist Velli Nyirongo weighed in to say the money market in Malawi remained strained, with significant risks related to exchange rate depreciation, high inflation and low foreign reserves.
However, he was quick to indicate that the late-2024 improvement in inflation offered a glimmer of hope for stabilisation in 2025.
“Policymakers must prioritise rebuilding foreign reserves and controlling fiscal deficits to ease borrowing costs and improve investor confidence because, for instance, long-term bonds like the seven-year Treasury note yield 34 percent, reflecting continued government borrowing needs at high costs.
“The persistent depreciation of the Kwacha in the year indicates ongoing exchange rate pressures due to limited foreign exchange reserves. Gross reserves decreases in the year, from 0.7 months in November 2023 to 0.57 months in February 2024, signal a critical foreign exchange shortage, among other things,” Nyirongo said.
