Mozambique: Private sector proposes reducing mandatory reserves to address foreign exchange shortages

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Mozambique: Private sector proposes reducing mandatory reserves to address foreign exchange shortages

5:13 CAT | 07 Oct 2024

File photo: Noticias

The business sector in Mozambique is proposing that the Bank of Mozambique reassesses
its position and reduces the mandatory foreign currency reserve rate, currently set at 39.5%, to ease the liquidity shortage in the market.

According to the Confederation of Economic Associations of Mozambique (CTA), the central bank lacks both theoretical and empirical justification for maintaining the mandatory reserve rate, which is contributing to the shortage of foreign currency in the market.

This is the CTA's response to statements made by the central bank's governor, Rogério Zandamela, who claimed that the availability of foreign currency is stable, though imbalances exist among banking institutions.

When announcing the measures taken by the Monetary Policy Committee (CPMO),
Zandamela assured that reserves continue to grow and that external solvency, in terms of payment for imports of goods and services, remains satisfactory.

However, the CTA believes that the regulator is ignoring the foreign exchange market
situation, where availability is increasingly limited, weakening the operations of businesses.

The CTA argues that one of the causes of this scenario is the increase in the mandatory reserve interest rate from 11.5% to 39.5%. According to CTA vice-president Zuneid Calunias, this measure is putting pressure on foreign currency liquidity, especially when combined with the suspension of the central bank's contribution to fuel import bills, which has changed the market dynamics.

He explained that commercial banks have increased their demand for foreign currency to
support fuel imports, resulting in a rise in net conversions. However, this demand was not matched by a balanced trade flow.

"In this context, assuming that since the end of BdM's intervention in the foreign exchange market, net international reserves have grown by 40%, reaching a coverage of 4.9 months of imports as of June, and considering that the IMF's benchmark is 2.8 months, BdM is in a position to support the market in gradually meeting these needs," Calunias said.

The CTA is therefore calling for a reduction in the mandatory reserve rate for foreign
currency and for the injection of liquidity into the market so that banks gain confidence and use their positive foreign exchange positions to support businesses.

Source: Noticias