Mozambique: Central bank to keep base interest rate at 14.25% until year’s end

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Mozambique: Central bank to keep base interest rate at 14.25% until year’s end

7:59 CAT | 18 Feb 2019

File photo: Lusa

Fitch Solutions said on Monday that Mozambique’s central bank will maintain its base interest rate at 14.25% until the end of the year to control inflation and encourage private consumption growth.

Analysts from Fitch said they believed the Bank of Mozambique’s decision to maintain its base interest at 14.25% at a meeting in February marks a change for a neutral perspective on monetary policy in 2019.

In a note on Mozambique’s monetary policy, sent to investors – which Lusa had acces to – the analysts also said maintaining the interest rate had to do with the evolution of inflation and internal demand.

Following an inflation of 3.5%, the analysts forecast a fading effect that influences growth of food prices, with inflation to reach 6.6% this year, impeding the central bank from implementing more stimuli, according to the note.

With financial markets practically shut down for Mozambique, the government strongly depends on internal loans, moving away potential customers and harming the transmission mechanism between monetary relief and credit growth, which had been negative since June 2017, the analysts also noted.

The central bank’s Monetary Policy Committee decided on 11 February to maintain the monetary policy interest rate, or MIMO, at 14.25%, according to a statement.

The central bank justified its decision with the fact that short and medium perspectives reflected that annual inflation could close at a single digit by the end of the current year.

Source: Lusa