Bank of Mozambique holds interest rates steady

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Bank of Mozambique holds interest rates steady

7:00 CAT | 24 Aug 2020

File photo: Lusa

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

Thus the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains 10.25 per cent.

Likewise, the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) remains 13.25 per cent, while the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains 7.25 per cent.
The CPMO also decided to hold the compulsory reserve coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique, steady at 11.5 per cent for local currency and 34.5 per cent for foreign currency.

A statement from the CPMO, signed by the Bank’s governor, Rogerio Zandamela, said the bank had decided to leave interest rates unchanged, “because of the worsening prospects for inflation in the medium term and the risks and uncertainties arising from greater contraction of economic activity in 2020 and a slower resumption in 2021”.

Zandamela expected inflation to speed up in the coming period, rising from the 2.8 per cent annual inflation registered in July. Price increases are to be expected, he added, because of the recent depreciation of the Mozambican currency, the metical, and the likelihood that oil prices will recover on the world market.

Despite the gradual relaxation of the restrictive measures imposed by the government under the state of emergency, to limit the spread of the Covid-19 pandemic, the central bank expected that the damaging effects of Covid-19 will continue to affect production and demand in the medium term.

In the second quarter of 2020, the economy shrank by 3.5 per cent, after growth of 1.68 per cent in the first quarter. Contraction is expected to continue this year, before a “timid recovery” in 2021.

The availability of foreign exchange in the Mozambican economy “remains at comfortable levels”, said Zandamela. Since the beginning of this year, the national banking system had purchased 3.309 billion US dollars on the domestic market and had sold 3.269 billion.

Mozambique’s gross international reserves now stood at 3.8 billion dollars, enough to cover more than six months’ imports of goods and services.

The Bank was concerned at increased pressure on the public finances. The forecast contraction in economic activity this year, plus the spread of Covid-19, and the fight against terrorism in the northern province of Cabo Delgado, meant there were increased worries about the effect on public expenditure, particularly for health and for defence and security.

Since the last meeting of the CPMO, in June, the risks and uncertainties have worsened, said Zandamela, notably because of the community transmission of Covid-19 (in Nampula, Pemba and Maputo cities) and the worsening military situation in Cabo Delgado.

If this situation continues, the Bank warned, “it may affect the profile of the economic and financial indicators, and oblige the CPMO to take corrective measures”.

Source: AIM