The Bank of Mozambique last week decided to keep its benchmark interest rate unchanged.
A statement from the central bank’s Monetary Policy Committee (CPMO) stated that the Monetary Policy Rate (MIMO), used by the bank for its interventions on the interbank money market to regulate liquidity, remains at 15.25 per cent. This rate had risen by 200 base points, from 13.25 to 15.25 per cent, in late March.
The decision not to alter interest rates, the CPMO said, “is sustained by the prospect that inflation will slow down to one digit in the medium term”.
The latest figures, however, did not show a slowdown. In fact, the annual inflation rate in June reached 10.81 per cent, according to the figures issued by the National Statistics Institute (INE), thus dealing a blow to the government’s hopes of keeping inflation to less than 10 per cent.
Nonetheless, the CPMO was optimistic that this rise would prove only temporary, because of “the slowdown in external demand, and the consequent slowdown in international commodity prices, in a context of maintaining exchange rate stability”.
But the CPMO admitted that, in the short term, prices will continue to rise, as the high international costs of fuel and grain are passed on to Mozambican consumers. But the CPMO expected prices to decline over the longer term, a trend favoured by the stability of the Mozambican currency, the metical.
Nonetheless, “risks and uncertainties linked to projections of inflation remain high”, it warned. Among those uncertainties were fuel prices, and the impact of the Russian invasion of Ukraine.
The CPMO forecasts economic recovery for Mozambique over the next two years, supported mainly by the natural gas projects in the Rovuma basin off the coast of the northern province of Cabo Delgado, and in the southern province of Inhambane, “in the context of the resumption of the programme with the International Monetary Fund (IMF), and of foreign aid from other cooperation partners”.
The CPMO concluded that “recent macro-economic prospects are in line with keeping the MIMO rate at its current level”. But should the risks and uncertainties worsen, the CPMO “will have no hesitation in increasing the MIMO rate”.