Bank of Mozambique leaves interest rates unchanged

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Bank of Mozambique leaves interest rates unchanged

7:15 CAT | 17 Mar 2021

File photo: Lusa

The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Wednesday, decided to leave the 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 at 13.25 per cent, after it was raised by 300 percentage points in late January.

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 16.25 per cent, and the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) is also unchanged, at 10.25 per cent.

The CPMO also left the compulsory reserve coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique, unchanged, at 11.5 per cent for local currency and 34.5 per cent for foreign currency.

A statement from the CPMO justified the decision not to alter interest rates “because of the prevalence of high risks and uncertainties”.

The forecast for annual inflation, it adds, has been revised downwards to one digit (i.e. less than ten per cent) – this is despite the rise in annual inflation from 3.52 per cent at the end of December to 5.1 per cent at the end of February, blamed on climatic shocks and the effect on domestic prices of the recent depreciation of the national currency, the metical.

However, in the short to medium term, lower price rises are expected “reflecting the current trend for the metical to appreciate”. The 300 percentage point increase in interest rates in January had the effect of halting the depreciation, and in recent weeks the metical has been gaining ground against the US dollar.

At the end of January, the metical was quoted at 75.11 to the dollar, but it has now climbed back to 73.35 to the dollar.

But the country faces many other uncertainties, warns the CPMO, including the evolution of the Covid-19 pandemic, the impact of recent natural disasters, and military instability, particularly in the northern province of Cabo Delgado.

The central bank believes there are prospects for “a timid recovery of economic activity in 2021”. Mozambican GDP shrunk by 1.3 per cent last year, but the bank expects “mild growth” this year, thanks to the vaccination campaign against Covid-19, the adoption of fiscal stimulus packages, and a gradual relaxation of the restrictive measures taken to halt the spread of the pandemic.

Nonetheless, the CPMO calls for “the deepening of structural reforms in the economy, seeking to strengthen institutions, to improve the business environment, to attract investment and to create jobs”.

Source: AIM