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Mozambique: Central Bank cuts benchmark interest rate by 1.5%

The central bank of Mozambique announced on Thursday a reduction of the benchmark interest rate by 1.5 percentage points, to 11.25%, due to the “significant revision” of inflation and demand resulting from the pandemic caused by the new coronavirus.

“The Monetary Policy Committee of the Bank of Mozambique decided to reduce the monetary policy interest rate, MIMO rate, by 150 basis points (bp), to 11.25%,” the central bank said in a statement. The institution explained that “the decision was sustained by the significant downward revision of inflation prospects for the medium term, in a context of greater decline in aggregate demand as a result of the impact of COVID-19 on the domestic and international economy.”

In the statement, the bank stressed that “monetary policy has room to continue supporting the country’s policies to mitigate the effects of COVID-19” and stressed that “the inflation outlook continues to improve and the country’s international reserves, of around US$3.9 billion, are at comfortable levels to cover more than six months of imports.”

The central bank added that further drops may occur even before the next meeting.

“For the short to medium-term horizon, the Committee’s concern about the impact of the COVID-19 on economic activity increases, so the Committee will continue to monitor economic and financial indicators, risk factors and their impact on inflation prospects and economic activity, and may take the necessary corrective measures before its next regular meeting,” scheduled for 17 June, it said.

The committee also decided to reduce the deposit facility and lending facility rates by 150 bp to 8.25% and 14.25%, respectively, and to maintain the mandatory reserve coefficients for domestic and foreign currency liabilities at 11.50% and 34.50%, respectively.

Regarding the macroeconomic scenario, the bank did not present figures, but it recognised that the outlook is darker due to the effect of the propagation of the pandemic, namely on Mozambique’s economic growth, despite the fact that inflation fell from 3.55% to 3.09% in March.

The downward revision of the inflation forecast “stems from the sharp decline in domestic demand, in a scenario of prolonging the restrictive measures imposed by the state of emergency, as well as the prospects of reducing the price of oil on the international market,” adds the governor.

“The prospects for economic growth for 2020 are deteriorating and the post-cyclone recovery efforts are slowing down, the economic consequences of COVID-19 are expected to be severe, in a scenario in which the Mozambican economy is already weakened by the effects of cyclones Idai and Kenneth and military instability in the northern and central areas of the country,” the central bank concluded.

The institution also pointed out that “the combination of these factors will lead to contractions in the mining and manufacturing industries, as well as in the transport, trade and services, hotel and restaurant sectors, altogether representing around 58% of the Gross Domestic Product (GDP).”

Globally, the COVID-19 pandemic has already caused more than 137,000 deaths and infected more than two million people in 193 countries and territories.

The disease is transmitted by a new coronavirus detected in late December in Wuhan, a city in central China.

The number of deaths from COVID-19 in Africa today has risen to 910 from 17,212 infections recorded in 52 countries.

Source: Lusa via Club of Mozambique

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