Mozambique: Fitch Solutions expects interest rate to fall to 12.25%

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Mozambique: Fitch Solutions expects interest rate to fall to 12.25%

2:39 CAT | 24 May 2021

File photo: Lusa

The consultancy Fitch Solutions said on Monday that the central bank of Mozambique is expected to lower its central interest rate by 1 percentage point in the second half, ending the year at 12.25%.

“The stable inflation outlook, in a context of a weaker exchange rate and with little pressure from demand, will make room for a more aggressive outlook in the coming quarters, particularly when economic activity will remain weak,” said the analysts of this consultancy owned by the same owners of the Fitch Solutions rating agency.

The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided last Wednesday to keep the monetary policy interest rate (MIMO rate) at 13.25%, the Mozambican financial regulator announced.

“The decision is based on the worsening of risks and uncertainties, despite the downward revision of the inflation outlook in the short and medium-term, mainly reflecting the recent appreciation of the metical,” the statement said in the press release.

The CPMO also decided to keep interest rates on the Permanent Deposit Facility (FPD) at 10.25% and on the Permanent Assignment Facility (FPC) at 16.25%.

The CPMO revised inflation downwards, decelerating to 5.19% in April from 5.76% in March due to the recent appreciation of the metical and the dissipation of the impact of the bad weather that struck the country earlier in the year.

The economy is expected to recover more slowly in 2021, sustained by weak domestic demand, coupled with the suspension of the gas exploration project by Total, notwithstanding the forecast gradual pick-up in external demand and the trend towards containing the spread of Covid-19.

Source: Lusa