Mozambique: Interest rate cut will have no impact, say Mozambican economists and businesspeople

Login

Register

http://www.clubofmozambique.com/

Mozambique: Interest rate cut will have no impact, say Mozambican economists and businesspeople

6:54 CAT | 05 Feb 2024

File photo: Lusa

The Bank of Mozambique has reduced the MIMO rate by 0.73%, to 16.5%, a level still considered high.

The central bank’s decision to lower interest rates will not have an impact on the lives of citizens or even on the country’s business enterprises, Mozambican economists said.

Although a sign that inflation may be under control, the Bank of Mozambique’s reduction of the monetary policy interest rate (MIMO rate] from 17.23% to 16.5% still leaves it at a level considered very high.

Bank of Mozambique governor Rogério Zandamela said that the decision creates conditions for the beginning of a cycle of gradual reduction in rates and interest, justifying the reduction with the consolidation prospects for keeping inflation at a single-digit average.

Zandamela said that, in December 2023, annual inflation stood at 5.3%, up from 5.4% in November, highlighting that “this variation is fundamentally due to the reduction in the price of imported food goods, particularly grocery products”.

In the opinion of economist João Mosca, the 0.73% reduction means that credit will continue to be expensive, which is why this decision will not have an impact on either companies or families.

For Mosca, “the level of credit requests from families reduced drastically in 2023 and will certainly also fall in the business sector, too”.

Mosca said that there had been a “slowdown” in production in Mozambique “for various reasons, but with a very significant weight placed on the issue of kidnappings”.

Construction industry businessman Luis Bila says that, “the excessive bureaucratic requirements of obtaining bank credit end up consuming this 0.73% reduction in the interest rate”.

“This decision has practically no effect on companies,” Bila said.

Economist Pedro Cossa says it is essential to know how to manage expectations regarding the central bank decision, because, he stressed, ordinary citizens will not feel its effect.

Cossa mentioned that the interest rate has fallen, “but the level of reduction has merely psychological effects; it will not significantly influence citizen’s pockets”.

“What the Bank of Mozambique did was give a signal that it is possible to reduce [the rate] taking into account the dynamics of the economy,” he said.

Mosca highlights that there was room for a more significant reduction, but this did not happen because of the Bank of Mozambique’s policy requiring commercial banks to hold almost 40% of their deposits with the central bank, “and the Bank of Mozambique does not pay any interest rates to the banks”.

Source: VOA Portugues