The Bank of Mozambique has announced a massive hike in its benchmark interest rates as it struggles to bring inflation under control and mop up excess liquidity.

A statement issued by the central bank’s Monetary Policy Committee (MPC) here Friday evening said the Standing Lending Facility (the interest rate paid by commercial banks to the central bank for money borrowed on the Inter-bank Money Market) will rise immediately by 600 basis points, from 17.25 to 23.25 per cent.

However, this is not quite the highest rate the central bank has ever charged. At one point in 2002, the rate reached 32.5 per cent although it subsequently declined, reaching 7.5 per cent in November 2014, and remaining at that level for a year.

Rate rises in October, November and December 2015 and in February, April, June and July 2016 brought the rate to 17.25 per cent. The latest rise, to 23.25 per cent will certainly be imitated by the commercial banks, making the cost of borrowing prohibitively high for small businesses.

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 basis 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 basis points, while for deposits in foreign currency the increase is only 59 basis points.

In a departure from previous practice, the central bank will now allow each commercial bank to use the Standing Lending Facility only twice a week. Furthermore, commercial banks must report the exchange rates used in transactions with the public to the Bank of Mozambique three times a day. The central bank will make this information immediately available to the public.

Central bank governor Rogerio Zandamela told a media conference the decision had been taken to make exchange rates more transparent. “It will allow each of us, through the central bank, to know what rates each of the commercial banks is offering. This will allow the central bank to discipline the market better,” he added.