Commercial banks to report exchange rates to Central Bank three times a day – Mozambique

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Commercial banks to report exchange rates to Central Bank three times a day – Mozambique

12:31 CAT | 24 Oct 2016

Magazine Independente (File photo)

In order to regulate the domestic foreign exchange market and curb currency speculation, the Bank of Mozambique since last Thursday 21 October is obliging commercial banks to report the exchange rates applied in transactions with the public three times a day.

The move comes in response to growing speculation in interest rates in the domestic market causing disorderly increases in the exchange rates of major foreign currencies such as the dollar, rand and euro.

The central bank points out that the forex market has been under constant pressure owing in part to factors that are not directly related to economic fundamentals, which makes the formation of exchange rates less transparent.

“In this context, to strengthen the monitoring mechanism of the exchange rates applied by commercial banks and to improve transparency, the Monetary Policy Committee decided to introduce, with immediate effect, the mandatory reporting to the Bank of Mozambique, three times throughout the day, of the exchange rates applied by commercial banks in transactions with the public, information that will be available to the market,” Governor of the Bank of Mozambique, Rogerio Zandamela explained.

Excess demand for foreign exchange in relation to supply brought on by the suspension of foreign aid and reduced foreign direct investment flows in a context of increasing public debt service, is contributing to the continuing depreciation of the metical.

In commercial banks, the US dollar was quoted at 78.48 meticais (average rate of buying and selling) on the last day of September, which represents a monthly and annual depreciation of 6.8 percent and 84.8 percent respectively. In the same period, the South African rand was trading at 5.72 meticais, equivalent to a monthly and annual depreciation of 13.0 percent and 85.7 percent respectively.

Exchange rate behaviour continues to be justified by the scarcity of foreign exchange in the market, caused by the suspension of foreign aid for direct support to the state budget and balance of payments. This shortage is further justified by the reduction of foreign direct investment flows, and the slowdown of Mozambican exports, in a context of difficulty financing the state budget deficit and rising public debt service charges.

Source: Magazine Independente