Mozambique: Prime rate continues to rise – credit more expensive in July

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Mozambique: Prime rate continues to rise – credit more expensive in July

10:26 CAT | 06 Jul 2023

File photo: Notícias

The Bank of Mozambique (BdM) on Friday (30-06) announced that the financial system’s prime rate would increase again in July.

The prime rate now stands at 24.1 %, up two months after having settled at 23.5% in April of this year, an increase of nine percentage points compared to March.

In the same period last year, the prime rate was 18.60%.

The creation of the prime rate was agreed in 2017 between the central bank and the Mozambican Association of Banks (AMB) to eliminate the proliferation of credit interest rates. At the time of its launch, it was 27.75%.

The prime rate is the sum of the single index (17.3%) set by the Bank of Mozambique, and a cost premium (6.80%) calculated by the AMB.

The prime rate increases over the last several months are for that very reason directly associated with the rise in monetary policy (MIMO) interest rates applied by the Bank of Mozambique over the last year and a half to control galloping inflation following the Russian invasion of Ukraine – in which it seems to have so far succeeded.

In practice, the new setting of this indicator ensures that the price of credit will increase again in July, since this rate applies to contracted credit operations (new, renewals and renegotiations) between credit institutions and financial companies and their customers, plus the financial margin (spread) that will be added or subtracted from the prime rate through the risk analysis of each specific credit category or operation.

The aim is for all credit operations to be based on a single rate, “plus a margin (spread), which will be added or subtracted from the prime rate, upon risk analysis” of each contract.

Source: Diário Económico