Mozambique: Benchmark prime rate raised just as employers had called for cuts over pandemic

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Mozambique: Benchmark prime rate raised just as employers had called for cuts over pandemic

3:09 CAT | 01 Apr 2020

File photo: Lusa

Mozambique’s benchmark interest rate will rise from 18% to 18.4% in April, the association of banks and the Bank of Mozambique announced on Tuesday, at a time when employers had called for a rate cut to address the slowdown caused by the Covid-19 pandemic.

It is the first time that the rate has risen since it was created in June 2017, at a value of 27.75%. The rate had been stable for five months and had last fallen in October 2019, from 18.3% to 18%.

The statement did not clarify the reasons for the rise, coming as it does at a time of severe economic slowdown due to the global imposition of coronavirus prevention measures.

The 0.4 percentage point rise comes at a time when the Confederation of Economic Associations of Mozambique (CTA), the main employer’s association in the country, had asked for the prime rate to be cut, as part of a set of measures it wants to see to mitigate the impact of the coronavirus pandemic.

In a study on the impact of the Covid-19 pandemic on the economy, employers advocate cutting the Monetary Policy (MIMO) interest rate by 6.20 percentage points, “[…] immediately passed on, in its entirety, to the ‘prime rate’ […], leading to a reduction from the current 18% to 11.80%”.

The creation of the prime rate was agreed between the central bank and the Mozambican Banking Association (AMB) to eliminate the proliferation of reference rates in the cost of money, and came into effect on June 1, 2017.

The objective is that all credit operations would be based on a single rate, “plus a margin (‘spread’), to be added to or subtracted from the prime rate as a result of the risk analysis” of each contract, its promoters explained at the time.

The new coronavirus responsible for the Covid-19 pandemic has already infected more than 791,000 people worldwide, of whom more than 38,000 have died. Of those infected, at least 163,000 are considered cured.

After emerging in China in December, the outbreak spread worldwide, prompting the World Health Organisation (WHO) to declare a pandemic situation.

The death toll in Africa has soared to 173, with confirmed cases exceeding 5,000 across 47 countries, according to the latest statistics from the continent.

Source: Lusa