The Monetary Policy Committee (CPMO) of the Bank of Mozambique, meeting in Maputo on Thursday, decided to leave all the bank’s interest rates unchanged. Thus the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains at 14,25 percent.
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 17,25 percent, while the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 11,25 percent.
The compulsory reserves coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique, also remains unchanged, at 36 percent for foreign currency, and 14 percent for local currency. A statement from the CPMO said the decision not to lower interest rates was based on the medium term prospects for the Mozambican economy.
Although these suggest a slight worsening in the inflation rate by the end of 2019, “this does not compromise the objective of macro-economic stability”, it said. “Inflation remains low and stable”, the central bank said, although there are risks that the inflation rate will speed up. These risks arise from the natural disasters that have struck Mozambique (such as cyclone Idai in March, and cyclone Kenneth this week), the trend for the depreciation of the Mozambican currency, the metical, and the increase in international fuel prices.
Annual inflation, as measured by the consumer price indices for the major cities, was 3,41 percent at the end of March (which compares with 3,05 percent at the end of March 2018). This reflected price stability in Maputo and Nampula, which offset price rises in Beira in the wake of cyclone Idai. The reduction in fuel prices announced by the government earlier this month, the statement added, is likely to reduce inflationary pressures, at least in the short term.
The central bank describes economic activity as “modest”. Real Gross Domestic Product, according to the National Statistics Institute (INE), only grew by 3,1 percent in the final quarter of 2018, which compares with 4,9 percent in the last quarter of 2017. The impact of cyclone Idai was likely to lead to a fall in growth rates, and growth would only resume again in 2020. The domestic exchange market “remains under pressure”, said the CPMO.
The metical has been depreciating since January. It was quoted at 62,73 meticais to the US dollar on 5 March, but fell to 64,63 to the dollar on 24 April. In the same period the currency fell from 4,43 to 4,6 meticais to the South African rand. “This loss of value of the national currency”, the statement said, “which occurs in a period when external risks remain high, also reflects an excessive demand for foreign currency arising from the worsening deficit on the current account”.
Mozambique’s international reserves, however, remained at comfortable levels, reaching 3,048 billion dollars on 19 April – enough to cover six months of imports of goods and services, excluding the transactions of the foreign investment mega-projects. Domestically, the CPMO said, the main sources of risk remain the sustainability of the public debt, in the context of uncertainty as to how the general elections of 15 October will be financed.
Added to this is the need for humanitarian assistance in the wake of natural disasters, the reconstruction of the infrastructures wrecked by cyclone Idai, and the reduction in revenue from the central provinces, also caused by Idai. External risks, it added, included a slowing down of the world economy due to trade tensions between the major powers, which would have an impact on commodity prices. — AIM