For most Malawians, 2025 was neither a year of cheap credit nor easy money. Households struggled under a persistently high cost of living while businesses deferred expansion as borrowing remained expensive.
At the heart of these pressures was a deliberate policy choice by the Reserve Bank of Malawi (RBM), which maintained a tight monetary stance throughout the year.
The central bank prioritised inflation control and exchange-rate stability even at the expense of short-term economic relief.
Looking back, 2025 stands out as a period defined by restraint and policy consistency.
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Monetary authorities resisted mounting pressure from businesses, economists and consumers, holding the line amid an already fragile economy.
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That economy was marked by deep-seated structural challenges, including persistent forex shortages, rising import bills and supply-side constraints.
Elevated food and input prices continued to drive inflation, complicating efforts to engineer a sustained slowdown in price growth.
Against this backdrop, RBM faced a difficult choice: ease monetary conditions to stimulate growth and relieve credit constraints or maintain tight policy to prevent inflation expectations from becoming entrenched.
The central bank chose the latter, arguing that premature easing could undermine macroeconomic stability.
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As a result, the RBM’s Monetary Policy Committee (MPC) kept the policy rate at 26 percent throughout 2025, extending a restrictive stance first adopted in late 2024.
The Lombard rate remained 20 basis points above the policy rate while the Liquidity Reserve Requirement was held at 10 percent for domestic currency deposits and 3.75 percent for foreign currency deposits.
In successive policy statements, the central bank warned that inflation risks, largely driven by food prices, exchange-rate pressures and fiscal imbalances, remained skewed to the upside.
Policy makers favoured continuity over experimentation, keeping monetary conditions tight even as economic growth remained subdued.
Malawi entered 2025 grappling with stubborn price pressures.
Year-on-year inflation rose to 28.1 percent in December 2024, up from 27 percent in November, driven mainly by higher maize and food prices.
Food inflation reached 35.6 percent, dominating monetary policy deliberations throughout the year.
Economic growth showed tentative improvement but remained weak. Both the MPC and government projected real GDP growth of around 2.8 percent in 2025, up from 1.7 percent in 2024.
While this marked a modest recovery, it fell short of levels needed to reduce poverty and unemployment.
Speaking to Business Times in November, RBM Director of Financial Markets Chakudza Linje said the decision to maintain a tight stance reflected concerns over the slow pace of disinflation.
“Even though we have seen some deceleration in inflation, it has not been fast enough. We felt it was necessary to maintain the tight policy stance to accelerate the decline,” Linje said.
Business leaders and analysts broadly supported the MPC’s cautious approach while stressing the importance of structural reforms.
The Economics Association of Malawi (Ecama) endorsed RBM’s decision, citing persistent inflation risks.
However, Ecama Executive Director Esmie Koriheya Kanyumbu warned against further tightening, arguing that inflationary pressures were largely supply-driven.
“The rise in inflation is mainly from the supply side. So even if the MPC tightened further, the impact wouldn’t be significant because the pressure is not coming from demand,” Kanyumbu said.
The tight-money strategy produced mixed outcomes. Inflationary pressures appeared contained, but the cost was widely felt across the economy.
High lending rates limited private-sector credit growth, particularly for small and medium-sized enterprises (SMEs).
While private-sector credit expanded sharply, reaching 48.9 percent in the third quarter, it continued to lag behind public-sector lending, which remained banks’ preferred option.
Commercial banks adopted a cautious approach, maintaining conservative lending standards amid elevated funding costs and rising credit risk.
While this helped safeguard financial stability, it further constrained credit access for productive sectors.
Economist Marvin Banda argued that the strong performance of the banking sector masked weaknesses in the real economy.
“High lending rates have delivered the most profitable era in Malawi’s banking history, but that profitability provides a false sense of recovery while the real economy remains subdued,” Banda said.
He contended that 2025 monetary policy relied too heavily on the policy rate to combat inflation driven mainly by structural and supply-side factors.
“When an economy is stagnating, traditional monetary strategies tend to fail. Inflation control in Malawi depends less on raising the policy rate and more on liquidity management, fiscal restraint, foreign-exchange reform and food-supply stability,” he said.
Fiscal dynamics further limited the effectiveness of monetary policy, as sustained government borrowing crowded the domestic financial market.
Less than a quarter of domestic credit flowed to the private sector.
Malawi’s restrictive stance was not unique. Across Africa, several central banks maintained elevated interest rates in 2025 amid persistent inflation, currency volatility and global uncertainty.
Even so, Malawi’s 26 percent policy rate ranked among the highest on the continent, reflecting severe domestic economic pressures rather than an outlier policy choice.
Looking ahead to 2026, the legacy of 2025’s tight monetary stance looms large.
The central question is whether the discipline of the past year has created enough stability for cautious easing or whether inflation risks will again force policymakers to keep money expensive.
