The International Monetary Fund (IMF) has welcomed the recent decision by the Bank of Mozambique to hike interest rates in order to slow down the growth in the rate of inflation.

Speaking in Maputo, where he presented an IMF report on recent economic developments in su-Saharan Africa, the Fund’s representative in Mozambique, Ari Aisen, described the central bank’s measures as “courageous”.

The Bank of Mozambique’s Monetary Policy Committee announced on Oct 21 an immediate increase in the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) by 600 base points, from 17.25 to 23.25 per cent. The Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) also rose by 600 base points from 10.25 to 16.25 per cent.

The Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique – which had been divided into two, for local and for foreign currency, has now been reunited, and stands at 15.5 per cent for all currencies. For deposits in local currency, the metical, that is an increase of 250 base points, while for deposits in foreign currency the increase is only 59 base points.

Aisen said these measures were correct to control inflation. “There’s an effort on the fiscal side”, he said. “On the monetary front, there’s been an increase in the compulsory reserves” – and such measures were key “to mop up excess liquidity”.

“The central bank understood that monetary policy needed to take a stance that confronted the rise in inflation”, he added. “I think the Bank of Mozambique recognized that it had to take measures to deal with inflation”.