MAPUTO– Mozambique’s central bank has cut its benchmark interest rate by 150 basis points.

A statement from the Monetary Policy Committee of the Bank of Mozambique Wednesday said the Interbank Money Market Rate (MIMO) will fall from 18 to 16.5 per cent. The central bank’s interventions on the interbank money market to regulate liquidity are based on this rate.

The Standing Lending Facility rate, the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market, falls by 100 basis points from 19 to 18 per cent, while the Standing Deposit Facility, the rate paid by the central bank to the commercial banks on money they deposit with it, remains unchanged at 12.5 per cent.

The Compulsory Reserves Coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique, also remains unchanged at 14 per cent for local currency, and at 22 per cent for foreign currency.

The Governor of the Bank of Mozambique, Rogerio Zandamela, told a media conference that continued low inflation justified the cut in interest rates.

The latest figures from the National Statistics Institute (INE), based on the consumer price indices for the three largest cities of Maputo, Nampula and Beira, showed that inflation for the first quarter of this year was just 1.74 per cent, and that annual inflation over the April 1 2017-March 31, 2018 period was 3.05 per cent.

Zandamela said this meant it was realistic to hope for single-digit inflation for 2018. The trend to low inflation has allowed the central bank to cut its interest rates repeatedly since mid-2017, and Zandamela expected this to continue.

He said that the interest rates observed by the commercial banks on the Interbank Money Market — for example, in transactions with treasury bills — have also tended to fall. In recent days, these rates have even fallen lower than the MIMO rate.

However, the interest rates charged by the commercial banks on loans to their clients remain extortionate, often at 25 per cent or more, rates quite unjustified either by inflation or by the central bank’s rates.

Zandamela admitted that the commercial banks have not cut their interest rates as would have been desirable. The Bank of Mozambique is in dialogue with them because we want to collaborate with the banks rather than confront them.

As for exchange rates, Zandamela noted that in recent weeks the Mozambican currency has staged a recovery against both the US dollar and the South African rand. He believed that central bank measures, notably raising the compulsory reserves coefficient for foreign currency to 22 per cent in February, had relaxed the pressure on the foreign exchange market.