Mozambique hikes bank’s reserve requirement ratios – Watch

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Mozambique hikes bank’s reserve requirement ratios – Watch

6:48 CAT | 26 Jan 2023

Screen grab: Banco de Moçambique

The Bank of Mozambique yesterday announced significant hikes in the reserve requirement ratios (RRR) for commercial banks: from 10.5 to 28 per cent, for national currency, and from 11.5 to 28.5 per cent, for foreign currency.

The central bank’s Monetary Policy Committee (CPMO) decided this Wednesday to raise the Reserve Requirement Ratio for liabilities in the national currency [metical] from 10.5% to 28%. The forex Reserve Requirement Ratio, for liabilities in foreign currency, increases from 11.5% to 28.5%. The measure is aimed at “absorbing excessive liquidity in the banking system with a tendency to generate inflationary pressure” a communique issued yesterday reads.

The reserve requirement and cash reserve ratios are the percentage of customer deposits and other liquid assets that commercial banks must store, within their own institution or with the central bank.

With this decision, the central bank intends to reduce the general increase in the price of goods and services, with the emphasis on basic necessities. With the same intention, the institution decided to maintain the monetary policy (MIMO) interest rate at 17.25%.

“The measure stems from the prevalence of high risks and uncertainties underlying inflation projections, with emphasis on the impact of the liquidity generated on the economy, resulting from the pressure on public expenditure, and the extension of geopolitical tension in Europe, despite the maintenance of single-digit inflation prospects in the medium term,” the statement reads.

The central bank also points out in the document that there is a prevalence of prospects for single digit inflation in the short and medium term, reflecting the effects of both the MIMO rate increases in 2022 and the stability of the metical.

The Bank of Mozambique CPMO concluded, after its first meeting of 2023, that the prospects for economic growth in the medium term were to be revised downwards slightly, due to the greater restrictiveness of financial conditions at a global level and the consequent slowdown in the economic activity of the country’s main commercial partners, with potential to reduce external demand. Meanwhile, the CPMO noted that, internally, the implementation of energy projects would continue to favor economic growth.

The CPMO also observed that the public debt remains high, currently standing at 288.7 billion meticais, an increase of 13.6 billion compared to December, 2022.

“The CPMO will continue to monitor the evolution of risks and uncertainties associated with inflation projections and will not hesitate to take the necessary corrective measures. The next ordinary meeting of the CPMO is scheduled for March 29, 2023,” the statement signed by Bank of Mozambique governor Rogério Zandamela concludes.

Source: Carta de Moçambique %Banco de Moçambique