COVID-19: Interest rate cut “very timid”; Mozambique has highest real interest rate in southern Africa – CDD

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COVID-19: Interest rate cut “very timid”; Mozambique has highest real interest rate in southern Africa – CDD

3:19 CAT | 19 Jun 2020

File photo: Macauhub

Mozambican civil society organization, the Centre for Democracy and Development (CDD), has today said that, in view of the magnitude of the impact of Covid-19, it considers the Bank of Mozambique’s reduction of the monetary policy interest rate (MIMO), “low”.

The Bank of Mozambique lowered the MIMO rate by 100 basis points to 10.25% on Tuesday in line with its “further downward revision of the inflation outlook for the medium term, in a scenario where aggregate demand is expected to contract more in 2020, while a soft recovery [is expected] in 2021”.

The CDD considers the Mozambican financial regulator’s decision “timid and ineffective” as far as mitigating the macroeconomic effects of Covid-19 is concerned.

“This measure announced by the Bank of Mozambique is correct, from the point of view of the direction of the adjustment, but the magnitude of the reduction is still very timid, taking into account the economic shock caused by Covid-19 in our country,” the evaluation suggests.

Mozambique has the highest real interest rate in southern Africa, because it applies one of the highest benchmark interest rates, it adds.

“The Bank of Mozambique, if it wants to stimulate the Mozambican economy in these times of crisis […], should further lower the MIMO rate to the levels of 4% to 5% seen in Botswana and Namibia, other Southern Africa countries,” the text reads.

The CDD notes that, since the country’s state of emergency was declared on April 1, interest rates on bank loans have increased, against all the expectations associated the Bank of Mozambique measures.

On the other hand, the state of emergency has reduced the volume of additional credit granted by commercial banks to the government and the economy.

The CDD notes that, perversely, when many companies and families are acutely aware of the lack of liquidity and savings, there is a galloping increase in time deposits.

“Conservatism and excessive prudence in intervention, both in the money market and in the foreign exchange market, which the Bank of Mozambique has been pursuing since the first state of emergency was decreed, is limiting the efficiency of monetary policy in times of crisis and, in in some cases, it ends up generating perverse effects [contrary] to those desired,” the analysis concludes.

Mozambique had, by Thursday (June 18) a cumulative total of 662 positive Covid-19 cases, and four deaths. Across Africa, there are 7,395 confirmed deaths among the more than 275,000 infected in 54 countries, according to the most recent statistics on the pandemic.

Globally, the Covid-19 pandemic has claimed more than 450,000 lives and infected more than 8.4 million people in 196 countries and territories, according to a report by the French news agency AFP.

Source: Lusa