By Benadetta Chiwanda Mia:
Annual growth rate of broad money (M2) accelerated to 48.8 percent in September 2024, up from 43.4 percent in August 2024, the Reserve Bank of Malawi says.
This figure also marks a significant increase compared to a 33 percent recorded in September 2023, demonstrating a continued rise in money supply amid the central bank’s efforts to implement a tighter monetary policy.
In its September Monthly Economic Review, RBM attributes the surge to a surge in demand deposits, term deposits, and foreign currency-denominated deposits, which showed year-on-year growth of K607.8 billion, K569.3 billion, and K274.6 billion, respectively— up from K466.5 billion, K561.8 billion, and K249.5 billion in August 2024.
Conversely, currency outside banks saw a lower year-on-year increase of K155.1 billion, compared to K159.9 billion in August 2024.
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On a month-on-month basis, M2 increased by K149.5 billion (3.1 percent), reaching K4.9 trillion in September 2024.
This growth can be attributed to increases in demand deposits, term deposits, and foreign currency-d enominated deposits of K91.7 billion, K72.1 billion, and K12.2 billion, respectively, raising their totals to K1.8 trillion, K1.7 trillion, and K684.4 billion.
In contrast, currency outside banks declined by K26.5 billion to K623.9 billion during the review month, primarily reflecting a slowdown in economic activity following the conclusion of the 2024 agricultural marketing season.
I n macroeconomic terms, money supply refers to the total volume of money in circulation, encompassing cash, coins, and balances in bank accounts.
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During the Monetary Policy Committee (MPC)’s fourth meeting of 2024, RBM noted that while inflation is expected to ease in 2025, the rapid growth in money supply—largely driven by net claims on government— could disrupt this outlook.
As a result, the MPC opted to raise the liquidity reserve ratio (LRR) for domestic currency deposits by 125 basis points to 10 percent.
Economic analyst Marvin Banda expressed concern, indicating that money supply growth that does not align with normal GDP growth leads to inflation and the dominance of fiscal policy.
“The RBM has focused too heavily on transitory causes of inflation, like food prices, which are beyond its control. The real issues fueling sustained high prices are structural. The current domestic LRR is merely a bare minimum for a central bank serious about addressing structural inflation,” Banda stated.
He noted that despite prior increases in the LRR, the annual growth rate of broad money continues to rise.
Banda noted that unchecked money supply negatively impacts individuals wishing to deposit their savings due to negative real interest rates, despite high nominal interest rates. This disproportionately benefits banks.
He warned that this trend would continue to impede private sector productivity as businesses navigate a constrained environment.
Banda suggested that it is essential to restrict government access to the Ways and Means account in order to limit its reliance on the growth of M2, recommending the implementation of further measures.
