Mozambique: Bankers expect interest rates to fall further this year

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Mozambique: Bankers expect interest rates to fall further this year

5:33 CAT | 05 Jul 2019

The CEOs of Banco Comercial e de Investimentos, Paulo Sousa, and Millennium BIM, José Costa, believe that Mozambique’s central bank will continue to lower interest rates in the second half of this year.

“Interest rates are going to go down even further. There has been a delay in the ongoing process of lowering interest rates because of the effects of Cyclone Idai, and the central bank has taken a cautious stance in order to control inflation,” the chief executive of Millennium BIM said during a debate at the Portugal-Mozambique Economic Forum in Lisbon on Wednesday.

“Idai created expectations of a reversal of the reduction of inflation in the second half and so the central bank became more cautious and, in the first five months, did not reduce interest rates,” Paulo Sousa said, acknowledging that “there was a spike in inflation, but it was only a spike and [it was only] in Beira”.

When asked by the moderator why interest rates were so high in Mozambique, Sousa predicted that inflation “will remain below the initial outlook, and the central bank has, because of this, already lowered interest rates by 1%, and further significant declines over the coming semesters are expected”.

“Thirty years ago, interest rates on mortgages in Portugal were 28%,” he pointed out, adding “It was not perfect but it was an environment one could live with”. He advised companies to focus on investing their own capital and not to rely solely on external financing.

“For companies thinking of fully financing their business with foreign capital, Mozambique turns out to be a difficult country, but common sense dictates that the cost of financing must always be lower than that of expected profit,” he added.

“It is possible with current interest rates to finance projects with a balance between own capital and external capital, and the trend in interest rates is clearly downward,” he concluded.

The two bankers expressed optimism about Mozambique’s economic future, highlighting forecasts of economic growth close to 10% from the time the liquefied natural gas projects come on stream.

Mozambique’s benchmark interest rate will fall this month for the first time since February, from 19.5% to 19.3%, according to the Mozambican Association of Banks and the Bank of Mozambique.

The rate from July going forward is in line with the Bank of Mozambique’s June 19 decision to lower the monetary policy rate (MIMO rate, one of the prime rate components). Since it was created, this benchmark rate has never risen, and has already fallen by 8.45 percentage points.

Millennium BIM is majority-owned by Portuguese bank Millennium BCP, and BCI is owned by Caixa Geral de Depósitos and BPI.

Source: Lusa