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Mozambique Central Bank leaves interest rates unchanged

Approximate reading time: 4 minutes

The Monetary Policy Committee of the Bank of Mozambique, at a meeting on Monday, decided to keep the central bank’s benchmark interest rate unchanged at 15 per cent.

 

This interest rate, the Interbank Money Market Rate (MIMO), is used by the central bank for its interventions on the interbank money market to regulate liquidity. It was cut from 15.75 to 15 per cent at the previous meeting of the Committee, at the end of August.

Speaking at a Maputo press conference, the Governor of the Bank of Mozambique, Rogerio Zandamela, said the bank’s other interest rates are also unchanged. Thus 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 at 18 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 at 12 per cent.

The Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique –remains unchanged at 14 per cent for local currency and 27 per cent for foreign currency.

Zandamela said the short and medium term prospects indicate continuing low inflation, of less than 10 per cent a year, in line with the central bank’s earlier projections. “However, after more than a year of continual reductions in MIMO, the Committee, faced with high domestic risks, and intensified external uncertainties, decided it is appropriate to keep the rates at their current level”, he added.

Inflation is, in fact, running at mush less than 10 per cent a year. The latest figures from the National Statistics Institute (INE), based on the consumer price indices of the three largest cities (Maputo, Nampula and Beira) indicate that inflation in September was only 0.11 per cent and inflation over the past year (from 1 October 2017 to 30 September 2018) was 4.89 per cent.

The exchange rate of the Mozambican currency, the metical, is essentially stable against the US dollar. Zandamela said there had been “some volatility” since the end of August, but this was within a narrow band. At the end of August, the average exchange rate in the commercial banks was 60.09 meticais to the dollar. It slipped to 61.52 to the dollar on 24 September, before recovering to 60.56 last Friday. Over the same period the exchange rate against the South African currency rose from 4.57 to 4.27 meticais to the rand.

Zandamela said the net international reserves remained at “comfortable levels”. They had fallen to 3.126 billion US dollars on 31 August, but by the third week of October the reserves had risen to 3.196 billion dollars, which is enough to cover seven months of imports of goods and non-factor services, excluding the transactions of the foreign investment megaprojects.

The interest rates charged by the commercial banks have fallen slightly, but are still much higher than the central bank’s rates. The average interest rates for loans maturing in a year fell from 24.57 per cent in July to 23.2 per cent in August. The average prime rate charged by the banks fell from 21.75 per cent in August to 20.4 per cent in September.

While the banks extort money from their clients with interest rates way above the rate of inflation, they are slashing the rewards they offer to holders of deposit accounts. The average annual interest rate on deposit accounts fell from 14.35 per cent in July to 10.65 per cent in August.

Bank credit to private business has almost dried up, said Zandamela, with the banks preferring to use their money to buy high interest bearing treasury bonds, instead of lending it to Mozambican companies.

The continued issuing of treasury bonds and bills is among the factors pushing the domestic public debt to startling levels. Since the end of August, it grew by over two billion meticais (about 35 million dollars). The total domestic debt is now 107.46 billion meticais (equivalent to 12.3 per cent of Mozambique’s GDP).

Zandamela expressed concern at the sustainability of the public debt, and at the uncertainties of “administered prices” (of which the most important are the prices of liquid fuels). He also warned of risks arising from international trade and geo-political tensions, the strengthening of the dollar and the oscillations in commodity prices, particularly of oil.

Also on Monday the Bank of Mozambique announced that it has fined five commercial banks, including the country’s two largest banks, the Millennium-BIM and the Commercial and Investment Bank (BCI) for violations of the law against money laundering and the financing of terrorism.

The heaviest fine, of 36.8 million meticais (about 614,000 dollars) was imposed against Banco Unico. The other banks fined were the BCI (20.15 million meticais), United Bank for Africa (18 million meticais), National Investment Bank (16 million meticais) and Millennium-BIM (400,000 meticais).

The violations were mostly failure to control transactions, and failure to notify the government’s Financial Intelligence Office immediately of any suspect transactions, and, in the case of Millennium-BIM, providing incomplete information.

Source: Club Of Mozambique

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