Mozambique: Central bank cuts interest rate to 13.5% – Watch

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Mozambique: Central bank cuts interest rate to 13.5% – Watch

7:49 CAT | 30 Sep 2024

Screen grab: Banco de Moçambique

The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided on Monday to lower the monetary policy interest rate, known as MIMO, from 14.25%, in force since July, to 13.50%, the institution announced.

“This decision is supported by the continued consolidation of the outlook for maintaining single-digit inflation in the medium term, in a context in which the assessment of the risks and uncertainties associated with inflation projections remains favourable”, the Bank of Mozambique explained in a statement after the Committee meeting, which takes place every two months.

The key interest rate had been set at 17.25% since September 2022, following the intervention of the central bank, which then began consecutive cuts from 31 January, when it was reduced to 16.50%. On 27 March it was cut to 15.75%, on 27 May to 15.00% and on 31 July to 14.25%.

The next meeting of the Committee is scheduled for 27 November.

In the same statement, the central bank explains that “inflation prospects remain in the single digits in the medium term”, which reflects, “essentially, the stability of the metical and the impact of the measures taken by the CPMO”.

For the medium term, the central bank expects “moderate economic growth”, despite “the prevalence of uncertainties regarding the impacts of climate shocks on agricultural production and various infrastructures”.

The governor of the central bank, Rogério Lucas Zandamela, had already admitted to adjusting the monetary policy adopted last year, in view of the containment of price increases, according to a letter sent to the International Monetary Fund (IMF).

“With inflation now back in the middle of the target range, the Bank of Mozambique will carefully monitor the need to adjust monetary policy to continue to fulfil its price stability mandate”, reads the letter, as previously reported by Lusa.

In the letter, dated December 19, 2023, which was part of the third assessment and approval of the Extended Credit Facility (ECF) program for Mozambique, completed that month by the IMF, the governor of the central bank recalled that in March 2022, when inflation “was still below targets”, the institution reacted to an “expected increase” in prices and in view of the “economic boost following the lifting of restrictions related to Covid-19”.

This reaction implied an increase in the key rate (MIMO) by 200 basis points, from 13.25% to 15.25%, followed in September 2022 by a new increase of the same proportion, which remained in force until January. “In doing so, the Bank of Mozambique’s policy aimed to proactively prevent risks” with inflation expectations in the short term, “while avoiding compromising the recovery in demand”.

Source: Lusa