Mozambique: Central Bank Leaves Interest Rates Unchanged

Maputo The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Thursday, has decided to leave its key interest rates unchanged.

Thus the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains at 12.75 per cent.

The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) remains 15.75 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 9.75 per cent.

There is also no change in the compulsory reserves coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique. This is still 36 per cent for foreign currency, and 13 per cent for local currency.

A statement from the CPMO said that, despite worsening risks and short to medium term uncertainties, the decision to leave the rates unchanged could be justified, since the bank’s projections indicate continued low inflation (single digit inflation that is, less than ten per cent a year).

Nonetheless, the CPMO pointed to several worrying factors, including the deteriorating security situation in the northern province of Cabo Delgado, and the impact of natural disasters (flooding in the north and centre of the country and drought in the south). Externally, the viral pneumonia, known as Covid19, caused by the new coronavirus first detected in the Chinese city of Wuhan, “could result in a slowdown in the global economy”, and consequent weak demand for Mozambican exports.

The CPMO forecasts a rise in inflation, arising from “the impact of climate shocks on future price dynamics, plus the depreciation of the Mozambican currency, the metical, and the trend to increased food prices on the world market”. In recent months, annual inflation in Mozambique has risen somewhat from 2.58 per cent in November 2019 to 3.48 per cent in January 2020. But the CPMO believes this does not threaten the target to keep annual inflation to a single digit.

The country’s international reserves remain “at a comfortable level”, said the CPMO. At the end of the third week of February, they stood at 3.921 billion dollars, 178 million dollars more than reported at the previous CPMO meeting, in December.

This s enough to cover more than six months’ imports of goods and services, excluding transactions of the foreign investment financed megaprojects.

The CPMO promised that it will continue monitoring the main economic and financial indicators and risk factors and will “take the necessary corrective measures”, even before its next meeting, scheduled for late April.

Source: Agencia de Informacao de Mocambique