By Paul Fauvet
Maputo (MOZTIMES) – The Bank of Mozambique’s Monetary Policy Committee (CPMO), meeting in Maputo on Monday, decided to leave the central bank’s main interest rate, the MIMO rate, untouched at 9.25 per cent.
This ended the regular interest rate cuts which the bank had first embarked upon in January 2024, when the MIMO rate was 17.25 per cent.
A statement from the CPMO said the decision to keep the rate unchanged “reflects the persistence of heightened uncertainty regarding the duration of the conflict in the Middle East and its spillover effects on supply chains and the supply of goods, as well as on international and domestic fuel and food prices”.
At meetings earlier in the year, the CPMO had expressed optimism that it would be able to keep cutting interest rates, but the chaos in the international money markets, caused by the aggression by the United Stats and Israel against Iran, put an end to those hopes.
The CPMO also decided to increase the coefficient for compulsory reserves for liabilities in the Mozambican currency, the metical (that is, the amount that the commercial banks are obliged to deposit with the central bank) from 29 per cent to 39 per cent.
This enormous leap, the CPMO said, is intended to absorb surplus liquidity in the banking system. Otherwise, the CPMO feared that this liquidity “would generate greater inflationary pressure”. But it kept the coefficient for compulsory reserves in foreign currency at 29.5 per cent.
Hopes of keeping the annual inflation rate at less than ten per cent are fading. The CPMO says that the annual rate rose from 3.4 per cent in March to 4.4 per cent in April. However, the underlying inflation rate (which excludes fruit and vegetables and goods with administered prices) remained stable.
The CPMO predicted further rises in inflation in the short to medium term, reflecting the increased prices of imported fuel. The annual inflation rate could soar to over ten per cent, depending on how long the war in Iran lasts.
“The risks and uncertainties associated with the inflation projections are worsening”, warned the CPMO. Those uncertainties concern the scale of the effects of fuel price rises on the chain of logistics and the supply of goods, and how long it will take to restore the productive capacity damaged in the devastating floods that hit southern and central Mozambique in the first months of the year.
The CPMO warned that public indebtedness and delays in debt servicing remain high, “affecting the normal functioning of the financial market and banking liquidity”.
The direction of monetary policy, it added, will remain conditional on the central bank’s assessment of underlying risks and uncertainties. (PF)
