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Consultant Fitch Solutions predicted on Friday that the Mozambican currency would depreciate over the next two years from 62.4 meticais to the US dollar this year to 65.5 in 2020 and 68.5 in 2021.
“We expect the Metical to gradually depreciate in the coming months,” analysts from the group that owns Fitch Ratings write, further anticipating inflation to rise from 2.8% this year to 5.1% by 2020.
In a note on the evolution of the metical sent to clients which Lusa has seen, analysts write that “after the revelation of the hidden debt scandal, the cut in support by international donors led to a significant depreciation of the metical, which was worth 78.6 per US dollar in October 2016”.
Since June 2017, they note, the metical has been appreciating, trading at between 57.6 and 64.4 meticais per dollar, but in the first half of 2020 it is expected to undergo “continued downward pressure due to the Mozambique’s persistent trade deficit”.
Exports of agricultural goods and coal and aluminium were disrupted by cyclones Idai and Kenneth, which damaged farming and other infrastructure in the central and northern provinces, Fitch recalls, adding that “also because of this, demand for consumer goods, fuels and imported capital goods will remain high”.
While praising the financial agreement reached with creditors at the end of October, which ensured that the default rating on the US$727.5 million issuance in 2016 was lifted, Fitch believes that “in the coming quarters there is great potential that the devaluation of the metical [will be] even greater than expected”.
This could happen, they conclude, “if there is a sharper deterioration in the trade deficit, if the international coal and aluminium prices face a negative shock, or if oil prices rise significantly,” in addition to the possible impact of factors such as the weather.
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