Mozambique’s central bank became the first globally to raise interest rates this year in a surprise move, saying the increasing number of coronavirus infections and recent natural disasters worsened the inflation outlook.
The Banco de Moçambique raised its interbank rate to 13.25% from 10.25%. That is the first increase in the key lending rate, known by its Portuguese acronym MIMO, since it was introduced in 2017. It lifted the permanent lending facility rate to 16.25% from 13.25%.
While inflation in the southern African nation accelerated to a 10-month high in December, it’s still low compared to many other countries in the region, and real interest rates were positive even before Wednesday’s move. Still, the central bank said it made a “substantial upward revision” to its medium-term inflation outlook to reflect the continuing depreciation of the metical, rising risks and uncertainty due to Covid-19 pandemic, natural disasters and violence in the the country’s gas-rich north.
Mozambique stands to reap billions of dollars from natural-gas projects by companies including Total SE, even as the government battles an Islamist insurgency that’s stalled work. New coronavirus infections rose to 1,274 on Tuesday – a daily record as the spread of the virus accelerates — bringing the total count to 34,055.
Analysts, including Neville Mandimika and Daniel Kavishe at Johannesburg-based FirstRand Group Ltd.’s Rand Merchant Bank, predicted the central bank would hold rates. It even had room to further ease this year, they said in a note ahead of the announcement.
The International Monetary Fund forecast in October that Mozambique’s economy would shrink by 0.5% in 2020 before posting growth of 2.1% this year. A tropical cyclone struck central Mozambique at the weekend, causing widespread flooding and damage, according to the government.
By Matthew Hill and Borges Nhamire
Source: Bloomberg via Club of Mozambique