Economics Association of Malawi President Bertha Bangara Chikadza says the sharp deceleration in broad money growth to 33.9 percent in the first quarter of 2025 indicates the effectiveness of the Reserve Bank of Malawi (RBM)’s monetary policy.
The annual growth rate of broad money (M2), which measures the total supply of money in the economy, slowed from 45.1 percent in the previous quarter, according to the Financial and Economic Review published by RBM on Tuesday.
The RBM report attributes the M2 growth deceleration to the central bank’s continued tight monetary policy stance, with the policy rate maintained at 26 percent.
The development is also attributed to lingering effects of the upward Liquidity Reserve Ratio (LRR) adjustment in the previous quarter—measures aimed at mopping up excess liquidity from the financial system.
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The report shows the slowdown was primarily driven by a year-on-year decline in foreign currency deposits, which fell by K80.2 billion in the first quarter of 2025, compared to a decline of K50.7 billion in the last quarter of 2024.
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“However, demand deposits, term deposits and currency outside banks recorded yearly increases of K590.1 billion, K586.2 billion and K271.6 billion in the 2025 first quarter compared to increases of K835.5 billion, K691.1 billion and K182.9 billion registered in the previous quarter, respectively,” the report states.
Consequently, their respective contributions to annual M2 growth were 14.6, 12.5, and 6.7 percentage points, all lower than contributions that were recorded in the final quarter of 2024.
In contrast, the contribution of foreign currency-denominated deposits declined to minus 2 percentage points in the quarter from minus 1.4 percentage points in the preceding quarter.
On a quarterly basis, M2 grew by K60.4 billion, representing a modest 1.1 percent increase to K5.4 trillion in the first quarter of 2025.
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This marks a significant slowdown from the K425.4 billion (8.7 percent) growth recorded in the last quarter of 2024.
The central bank said quarterly growth was driven by increases in term deposits and currency outside banks, which rose by K76.9 billion and K73.5 billion, respectively, to K1.9 trillion and K726.1 billion in the first quarter of 2025.
“The development was mainly due to a preference for term deposits over demand deposits, driven by relatively higher interest rates,” RBM says.
In an interview, Chikadza explained that this has manifested into lower outcomes in demand deposits, term deposits and foreign currency deposits in the first quarter of 2025.
“The outturn reflects the effect of the upward adjustment of the Liquidity Reserve Ratio during the fourth quarter of last year, which constrained the deposit creation process by commercial banks and subsequent growth of money supply,” Chikadza said.
