14 January 2014

Mozambique: Bank of Mozambique Keeps Interest Rates Unchanged

Maputo — The Bank of Mozambique has decided to leave its key interest rates unchanged for at least the next month.

At its meeting of the new year, held in Maputo on Monday, the Bank's Monetary Policy Committee decided to keep the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) at 8.25 per cent.

The Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 1.5 per cent, and the Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique - is also unchanged at eight per cent.

The Committee also decided that the central bank will intervene in the inter-bank markets in order to ensure that the monetary base does not exceed 45.892 billion meticais (about 1.53 billion US dollars) by the end of January.

The monetary base increased by 2.69 billion meticais in December, and reached 47.544 billion meticais at the end of the year. The statement from the Policy Committee said that this “respected the target laid down in the monetary programme for 2013”.

The statement noted that, according to the consumer price index for the three major cities (Maputo, Beira and Nampula), inflation rose by 0.57 per cent in December. Inflation over the entire year stood at 3.54 per cent.

Summarising the 2013 inflation, the statement said it “reflected the stability of the metical on the domestic exchange market, the evolution of monetary aggregates in line with the monetary programme, together with an adequate supply of fruit and vegetables on the market, thanks to the rapid recovery of agriculture from the effects of the floods at the start of the year”.

Also contributing to low inflation were the fall in commodity prices internationally, and the authorities' crackdown against speculation during the festive season.

The debts of private companies to the Mozambican banking system rose by almost 5.1 billion meticais (3.5 per cent) in November, the last month for which full records are available. The growth in the private sector debt between January and November was 27.7 per cent.

One factor making it difficult for banks to recover all the loans is their own extortionate interest rate polices. The commercial banks are effectively ignoring all the signals sent by the central bank, and keep their own rates suffocatingly high. Thus the average interest rate charged by the banks to their clients in November was 20.25 per cent, only 0.25 per cent lower than in October.

Favoured clients receive a prime rate - the average prime rate was 14.97 per cent in December, falling to 14.39 per cent in early January.

As for exchange rates, the metical continued to depreciate against the US dollar and appreciate against the South African rand.

On the Inter-Bank Exchange Market, the metical closed the year at 29.95 to the dollar. This was a depreciation of 0.07 per cent in December and of 1.49 per cent over the year. There were 2.84 meticais to the rand on the last day of trading, which meant that the metical gained in value against the South African currency by 3.73 per cent in December and by 18.16 per cent over the year.

Mozambique's net international reserves increased by 81 million dollars in December to reach a total of 3.009 billion dollars. The country's reserves at the end of 2013 covered 5.1 months of imports of goods and nonfactor services.

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