The Bank of Mozambique on Wednesday increased its benchmark interest rate by 200 base points.
A statement issued by the bank’s Monetary Policy Committee (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, increases from 13.25 to 15.25 per cent.
This sharp rise follows a period of more than a year (since January 2021) in which interest rates had held steady.
The CPMO justified increasing interest rates on the grounds that the prospects for inflation have deteriorated. What it delicately calls “the rise in geo-political conflict in Europe”, plus natural disasters in central and northern Mozambique, threaten to push prices higher.
“Increasing the MIMO rate”, it says, “seeks to maintain control over inflation in the short and medium term, so as to allow a gradual transition to single digit interest rates, in a context of the resumption of the programme with the International Monetary Fund (IMF), and the implementation of natural gas projects”.
The prospects, the CPMO warned, are for “an acceleration of general and underlying inflation in the short and medium term, mainly reflecting the direct and indirect effects of the increase in fuel and food prices”, despite the stability of the Mozambican currency, the metical.
The CPMO put annual inflation in February at 6.8 per cent.
The risks and uncertainties associated with projections of inflation include the Russian aggression against Ukraine, since it is not known how long that will last or the scale of its impact.
Other uncertainties include the effects of the recent storms on Mozambican prices, constraints on global supply chains, and to what extent the recent fuel price increases will push up the prices of other goods and services.
The central bank remained optimistic about the recovery of economic activity in Mozambique in 2022, despite the likely slowdown in external demand. This optimism results from the easing of the government’s restrictive measures imposed to slow down the spread of Covid-19, and the implementation of energy programmes in Inhambane and in the Rovuma Basin, off the coast of Cabo Delgado province.
The Inhambane programme refers to the Temane Thermal Plant (CTT), for which President Filipe Nyusi laid the first stone on Monday. This will be the largest power station built post-independence in Mozambique, generating 450 megawatts (MW), in the Inhambane district of Inhassoro.
In the Rovuma Basin, the first of the liquefied natural gas (LNG) projects, is expected to start production and export in the second half of the year. This is the floating LNG platform operated by the Italian energy company, ENI.
The CPMO also noted an increase in domestic public debt, which rose from 220.6 billion meticais (about 3.45 billion dollars) in December to 242.3 billion meticais in March.