The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Friday, decided to leave the central bank’s main interest rate unchanged.
A statement issued by the CPMO said that the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains at 13.25 percent, after it was raised by 300 percentage points in late January.
The statement did not mention either the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) or the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it), so it can be presumed that they remain at 16.25 percent and 10.25 percent respectively.
The CPMO reduced substantially the compulsory reserve coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique. For local currency, the coefficient falls from 11.5 to 10.5 percent, and for foreign currency from 34.5 percent to 11.5 percent. This move, the statement adds, “seeks to make more liquidity available for the economy”.
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The decision to leave interest rates unchanged, it said, “rests on continued prospects for single-digit inflation, despite the prevalence of a high level of risks and uncertainties, particularly those arising from the impacts of Covid-19”.
The CPMO added that there has recently been an improvement in the military situation in the northern province of Cabo Delgado, where the defense and security forces, allied with contingents from Rwanda and from member states of the Southern African Development Community (SADC), are fighting terrorists linked to the self-styled “Islamic State”.
But uncertainties remain about the scale of the impact of the Covid-19 pandemic on the Mozambican economy. The pandemic could also cause constraints in international supply chains, with the potential for limiting the supply of imported goods.
The CPMO noted that inflation remains relatively low. Annual inflation was 5.5 percent in July, rising to 5.6 percent in August, with lower depreciation of the Mozambican currency, the metical, against the US dollar, than experienced earlier in the year.
“In the short and medium-term”, the statement added, “it is forecast that single-digit inflation (i.e. less than 10 percent) will continue, despite prospects for increased food and oil prices on the world market”.
The CPMO noted that Mozambique’s Gross Domestic Product grew by two percent in the second quarter of 2021 “thanks to the recovery in most sectors of economic activity, driven mainly by foreign demand”.
But it warned that “the return to robust economic growth will continue to demand the deepening of structural reforms in the economy, seeking to strengthen institutions, improve the business environment, attract investment and create jobs”.