14 June 2014

Mozambique: Central Bank Keeps Its Interest Rates Unchanged

Maputo — The Monetary Policy Committee of the Bank of Mozambique, meeting in Maputo on Friday, decided to keep the bank's key interest rates unchanged for at least another month.

The statement issued by the Committee said that the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) will remain 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 Central Bank's interest rates have remained unaltered since October 2013, when the Standing Lending Facility was cut by 50 base points, from 8.75 to 8.25 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 48.023 billion meticais (about 1.57 billion US dollars) by the end of June.

At the end of May, the monetary base had reached 48.122 billion meticais, which was 1.2 per cent higher than the target set by the central bank of 47.533 billion meticais. The rise over the month was 2.8 per cent, caused by an increase of 1.504 billion meticais in notes and coins in circulation, while bank reserves fell by 173 million meticais.

The rise in notes and coins in circulation was caused by a heavy demand for cash to meet the requirements of the agricultural marketing campaign, particularly the purchase of tobacco from peasant farmers. Agricultural marketing reaches its peak in May and June.

The statement noted that, according to the consumer price index for the three major cities (Maputo, Beira and Nampula), the May inflation rate was minus 0.35 per cent. For the first time this year, over the month prices fell slightly rather than rising.. The yearly inflation rate - June 2013 to May 2014 - was 2.91 per cent.

The monetary policy committee commented that the behavior of inflation in May “reflected the seasonal effect of the start of the cool season, which favours the domestic production of fresh produce and of crops from the second sowings, together with the stability of the metical”.

On 31 May, the metical was quoted at 30.63 to the US dollar on the Inter-Bank Exchange Market. The rate was almost unchanged over the month - on 30 April there had been 30.65 meticais to the dollar. This barely perceptible movement was an appreciation of the metical by 0.07 per cent. Since the start of the year, however, the metical has depreciated by 2.27 per cent against the dollar.

There were 2.92 meticais to the rand on 31 May - which was exactly the same figure as on the last day of April. Since January the metical has declined by 2.82 per cent. Over the last year - June 2013 to May 2014 - the metical appreciated by 1.02 per cent.

Provisional figures for the end of May show a decline of 23.9 million dollars in

Mozambique's net international reserves. By the end of the month, the reserves stood at 3.177 billion dollars, enough to cover four and a half months of imports of goods and nonfactor services (excluding the imports made by the foreign investment mega-projects).

The statement noted that the average prices of key grains on the world market continued to fall in May - rice by 25.9 per cent and maize by 20.7 per cent. However, the price of wheat rose by 5.2 per cent. Mozambique is self-sufficient in maize, but still imports large amounts of wheat and rice.

The price of a key Mozambican export, coal, also continued to fall during May - the price of coking coal dropped by 26.5 per cent and of thermal coal by 15.1 per cent. The average price of natural gas, another major Mozambican export, fell by 7.3 per cent.

Summarising the situation, the Monetary Policy Committee said that the current economic situation and the medium term prospects for inflation made it appropriate to continue current monetary policy, and hence there would be no change in central bank interest rates.

Pf/ (721)

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