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Mozambique’s central bank cuts rate for the 8th time as inflation in single digits

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Mozambique’s central bank lowered its monetary policy rate for the eight consecutive time as its outlook for inflation points to single digits with no signs that aggregate demand will create significant price pressures.

The Bank of Mozambique (BM) cut its MIMO rate (monetary policy rate) by 75 basis points to 15.00 percent and has now cut it by 675 points since April 2017 when MIMO became the new policy rate and set at 21.75 percent.

“The MPC considers that the current stance of monetary policy is appropriate in its contribution to the preservation of macroeconomic stability,” BM said.

In addition to the rate cut, BM raised the reserve ratio for banks’ liabilities in foreign currency by 500 basis points to 27.00 percent due to “volatility in the foreign exchange market.”

The reserve ratio for liabilities in the metical was maintained at 14.0 percent.

Mozambique’s inflation rate rose to 4.73 percent in July from 4.4 percent due to higher administered prices amid slower growth in food prices.

Taking into account the recent upward revision of regulated prices of goods and service, particularly electricity and water prices, BM said its forecast post to single digit inflation over the nexts eight quarters.

The economy expanded by an annual 3.3 percent in the second quarter, up form 3.2 percent in the first quarter, supported by agriculture, mining, social services and public administration.

Although BM said a decline in electricity and water services, construction, hotels and restaurants curbed economic activity, it added business expectations remain positive.

Earlier this month the International Monetary Fund (IMF) said the central bank still had room to lower its rates but added this should be done cautiously given the uncertainties in the global economy and the electoral cycle in Mozambique.

The IMF forecast growth this year of 3.5 to 4.0 percent, rising to 4.0 – 4.5 percent in 2019, supported by further cuts in interest rates given the benign outlook for inflation, which is forecast to average 6.5 percent this year and then 5.5 percent in 2019.

Mozambique’s international reserves are forecast to remain at comfortable levels this year and next, IMF said.

Source: african markets

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