Mozambique: Mandatory reserves held by banks grew again in July to all-time high

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Mozambique: Mandatory reserves held by banks grew again in July to all-time high

12:10 CAT | 20 Sep 2024

File photo: Lusa

Mandatory reserves held by Mozambique’s banks grew again in July, reaching an all-time high of 258.224 billion meticais (€3.634 billion), according to data from the central bank.

According to a statistical report from the Bank of Mozambique, the volume of these reserves broke the previous record of 257,777 billion meticais (€3,627 billion) in June, and was also the second consecutive monthly increase.

The mandatory reserves of commercial banks at the central bank were set by the Bank of Mozambique at a ratio of 10.5% in national currency and 11% in foreign currency at the beginning of January 2023.

However, in the first six months of 2023, the central bank increased the ratio twice, to “absorb excess liquidity in the banking system, with the potential to generate inflationary pressure”.

The last of these increases took place in June last year, reaching 39% of deposits in national currency and 39.5% in the case of foreign currency to be held in bank reserves.

Since the end of December 2022, when they amounted to 62,144 billion meticais (€873 billion), the volume of bank reserves held by the central bank has already increased by more than 315%.

After the second increase in the coefficients, the Confederation of Economic Associations of Mozambique (CTA) considered that the decision made it even more expensive to obtain bank financing, essential in an economy of small and medium-sized companies, which would face more difficulties.

On August 1, the Bank of Mozambique decided to keep the mandatory reserve coefficients of commercial banks unchanged, at maximum values, at least until the end of September, despite appeals from businesspeople and the International Monetary Fund (IMF).

The decision was taken at a meeting of the Monetary Policy Committee (CPMO) of the central bank. The next meeting of the CPMO is scheduled for September 30 .

The IMF advocates reducing reserve ratios to boost the economy, advising alternatives to absorb excess liquidity and remuneration of reserves.

“Reducing high reserve requirements is essential to ease financial conditions. Although the Mozambican financial system has a structural liquidity surplus, significant increases in required reserves in 2023 [from around 10% to 40%] (… ) may have been greater than necessary to absorb excess liquidity,” reads the IMF report on the fourth evaluation of the Extended Credit Facility (ECF) program,, completed in July.

On July 25, Mozambican businesspeople pointed out a deficit of US$400 million (€358 million) in foreign currency, leading to delays in payments abroad, fines and drops in invoicing, and called on the central bank to reduce the mandatory reserve ratio.

According to data from the CTA, unmet needs in imports or payments abroad already “amount to 400 million dollars” in 2024, due to “liquidity constraints” of foreign currency in banks.

“In general, the shortage of foreign currency in the market has constrained the process of paying invoices abroad”, highlighted the vice-president of the CTA, Zuneid Calumia.

Source: Lusa