Mozambique’s central bank raised its benchmark rate on its permanent facility for providing liquidity by 100 basis points to 10.75 percent, citing a “prevalence of pressure in the short and medium-term” on domestic inflation from reduced supply of fresh agricultural products due to drought in the southern part of the country and the impact of the depreciation of the metical.

The Bank of Mozambique, which already raised its rate by 225 basis points in 2015, added that economic growth has been below forecasts and noted the slowdown in the international economy, with the slowdown in China’s economy and the continuing decline in commodity prices as the main risks facing the global economy that is also characterized by the strengthening U.S. dollar.

Mozambique’s inflation rate rose further to 11.25 percent in January from a 2015 high of 10.55 percent in December.

The central bank also said it would target a monetary base of 68.163 billion meticais in February from 71.179 billion in late January.

The exchange rate of Mozambique’s metical was volatile last year, reflecting shocks to the country’s economy, the continued rise in the U.S. dollar, the fall in prices of the main goods exported from Mozambique and reduced foreign direct investment and foreign aid flow.

The central bank said the metical’s exchange rate was 46.06 to the dollar on the interbank foreign exchange market on the last day of January for a monthly depreciation of 2.47 percent and an annual depreciation of 42.25 percent. In banks, the average exchange rate on the same day was 47.65 for a monthly depreciation of 0.74 percent and in exchange bureaux the metical was quoted at 50.89 to the dollar.

Mozambique’s Gross Domestic Product expanded by an annual 5.9 percent in the third quarter of last year and the central bank estimated fourth quarter growth of 5.6 percent with business confidence as expressed by the economic climate indicators down for the fourth consecutive month in December.

Source: Counting Pips/ Central Bank News