Bank of Mozambique holds interest rate steady

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Bank of Mozambique holds interest rate steady

4:39 CAT | 20 May 2022

Image: Lusa

The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Thursday, has decided to leave the bank’s reference interest rate unchanged.

According to a statement from the CPMO, the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains at 15.25 per cent. This rate had risen by 200 base points, from 13.25 to 15.25 per cent, in late March.

The CPMO statement said the decision not to raise interest rates further was based on forecasts of single digit inflation (i.e. less than ten per cent) in the medium term “despite the high risks and uncertainties associated with these projections, notably the effects of geopolitical tensions in Europe” (a euphemistic way of referring to the Russian invasion of Ukraine).

Nonetheless, in the short term inflation will remain high, said the CPMO “reflecting the adjustment of the prices of administered goods” (such as fuel).

Annual inflation increased from 6.7 per cent in March to 7.9 per cent in April. However, underlying inflation (which excludes administered prices and fruit and vegetables) “remains stable”, the CPMO claimed.

The central bank predicts continuing economic growth in 2022 and 2023, after growth of 4.1 per cent in the first quarter of 2022. That growth reflected the lifting of restrictive measures imposed to halt the spread of the Covid-19 pandemic. As the measures were lifted, so the hotel and restaurant businesses began to revive.

Foreign demand for Mozambican mineral exports picked up, leading to an improvement in the extractive industry.

The CPMO expected economic recovery to continue, thanks to the natural gas projects, in the southern province of Inhambane and in the Rovuma Basin, in the far north, and the resumption of a programme with the International Monetary Fund.

Macro-economic prospects, the CPMO concluded, favoured maintaining current interest rates in the short term “in order to guarantee low and stable inflation”.

Source: AIM