13 November 2012

Mozambique: Bank of Mozambique Cuts Interest Rates Again

Maputo — The Bank of Mozambique has cut its key interest rates again, for the fifth time this year.

The Bank’s Monetary Policy Committee, meeting on Wednesday, announced a cut of 100 base points in the Standing Lending Facility (which is the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market). This rate falls from 10.5 to 9.5 per cent. At the beginning of 2012, the Standing Lending Facility rate was 15 per cent.

The interest rate paid by the central bank to the commercial banks on money they deposit with it (the Standing Deposit Facility) falls by 25 base points, from 2.5 to 2.25 per cent, while the Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique - remains at eight per cent.

The statement from the Monetary Policy Committee said “despite the adverse international conjuncture, the country’s main economic and financial indicators are continuing to evolve in line with the macroeconomic programme established for 2012”.

In particular, inflation remained low and the Bank predicted that by the end of the year it will be lower than the target figure of 5.6 per cent.

This is a very conservative prediction, since what Mozambique is currently experiencing is not inflation but deflation. According to the figures released by the National Statistics Institute (INE) earlier this month, inflation from January to the end of October was minus 0.11 per cent.

This is the lowest inflation Mozambique has recorded since the introduction of structural adjustment measures in 1987.

Inflation from January to October in 2010 was 11.7 per cent, and for the same period in 2011 it was 4.15 per cent.

Yearly inflation – from 1 November 2011 to 31 October 2012 – was 1.8 per cent. Yearly inflation at the end of October 2011 was 9.5 per cent, and at the end of October 2010 it was 15.27 per cent.

Currently, Mozambique is experiencing the lowest inflation of any country in SADC (Southern African Development Community).

Even the International Monetary Fund (IMF) does not expect yearly inflation to reach more than 2.5 per cent by the end of December, though it predicts that inflation will rise to six per cent in 2013.

The Monetary Policy Committee statement says that the Mozambican currency, the metical, is depreciating against the US dollar, but is gaining value against the currency of its main trading partner, the South African rand.

On 31 October, the metical was quoted at 29.4 to the dollar on the Interbank Exchange Market. This was a depreciation of 2.3 per cent since the end of September. Over the past year the metical has depreciated by 8.77 per cent against the dollar, which compares with a sharp appreciation of 24.62 per cent in the year from 1 November 2010 to 31 October 2011.

Against the rand, the metical appreciated by 1.74 per cent in October and by 2.11 per cent over the past year.

As for the money supply, this reached 36.8 billion meticais at the end of October, which was an overall increase of 87 million meticais during the month. This broke down into an increase in bank reserves of 256 million meticais (1.9 per cent), and a decline in notes and coins in circulation of 169 million meticais (minus 0.7 percent). The target set by the central bank is that the money supply should not exceed 39.12 billion meticais by the end of November.

One item of bad news in the Monetary Policy Committee statement is that the world market prices of some of Mozambique’s main exports have continued to fall. Thus in the year from November 2011 to October 2012, the price of Mozambique’s largest export, aluminium, fell by 18.2 per cent. The price of cotton fell by 28 per cent and of sugar by 14.6 per cent.

The price of coal, now being exported in large quantities from the open cast mines in the western province of Tete, also fell sharply – by 23.2 per cent for thermal coal, and by 15.8 per cent for coking coal.

However, there are some signs of a recovery in the price of sugar, which rose by 10.7 per cent in October, and of coking coal, which rose by 19.1 per cent during the month.

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