Mozambique: Prime lending rate registers biggest jump since March 2021

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Mozambique: Prime lending rate registers biggest jump since March 2021

2:17 CAT | 01 Nov 2022

File photo: Lusa

The reference interest rate (‘prime rate’) for credit operations in Mozambique on Monday recorded the largest increase since March 2021, rising from 20.6% to 22.5%, the Mozambican Association of Banks (AMB) announced.

The rate calculated monthly by the AMB and the Bank of Mozambique is based on a single index calculated by the central bank, which rose to 17.2%, and a cost premium of 5.3% set by the AMB, which remains unchanged.

This is the third rise this year. In May, the prime rate rose by 50 basis points and, in June, by 150.

One needs to go back to March 2021 to find a steeper rise than that registered yesterday. At that time, the depreciation of the metical and the risks to the economy associated with Covid-19, cyclones and armed violence caused a jump of 230 basis points.

Increases in the prime rate have been associated with the rise in the monetary policy interest rate (MIMO), which influences the formula for calculating the prime rate by the central bank, in order to control inflation.

Year-on-year inflation in September was 12.01%, a slowdown of 0.09 percentage points from 12.1% in August so slight that prices could equally well be said to have stagnated.

Food, non-alcoholic beverages and transport have most contributed to the increase in prices in Mozambique.

The creation of the prime rate was agreed in 2017 between the central bank and the AMB to eliminate the proliferation of different interest rates. At the time of its launch, it had a value of 27.75% and has at times been 525 basis points lower since then.

The objective is for all credit operations to be based on a single rate, plus a spread, arrived at through risk analysis of individual contracts, to be added to or subtracted from the prime rate.

Source: Lusa