15 March 2016

Mozambique: Central Bank Holds Interest Rates Steady

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

A statement from the Bank's Monetary Policy Committee, which met in Maputo on Monday, declared that “in light of the projections for inflation in the short and medium term, which continue to reflect the prevalence of factors of pressure, the Committee thinks it important to strengthen the coordination of fiscal-monetary and sector policies, as well as the monitoring of the main macro-economic indicators”.

That meant there was no room for reducing interest rates. So 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 10.75 per cent. It rose to this figure, from 9.75 per cent, in mid-February.

This is the highest interest rate the Bank of Mozambique has charged since September 2012. The rate then fell gradually, reaching 7.5 per cent in November 2014. It remained at that level for a year, but three rate rises in October, November and December 2015 brought it back up to 9.75 per cent. That rate held in January, but in February the upward trend resumed.

The Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 4.25 per cent. The Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique - also remains unchanged, at 10.5 per cent.

Figure from the National Statistics Institute (INE), based on the consumer prices indices for the three largest cities (Maputo, Nampula and Beira), show an inflation rate for February of 2.24 per cent. Inflation for the first two months of the year was 4.95 per cent.

Despite the relatively sharp rise in inflation the business confidence index, also published by the INE, showed a slight improvement in January, supposedly based on a favourable assessment of the prospects for employment and prices. But this was before the rebel movement Renamo resumed its ambushes against vehicles on roads in the central provinces, which will certainly have shaken business confidence.

The Mozambican currency, the metical, continued to depreciate in February, though at a fairly modest pace. At the end of February, the US dollar was quoted at 47.28 meticais on the Interbank Exchange Market.

The metical had slid by 2.65 per cent against the dollar during the month, and the annual depreciation was 49.06 per cent.

In the commercial banks the average exchange rate on 29 February was 48.69 meticais to the dollar, a monthly depreciation of 5.68 per cent. At the end of February, there were 2.95 meticais to the South African rand, a depreciation over the month of 2.43 per cent. But over the past year the metical has only fallen in value against the rand by 3.87 per cent.

Provisional figures show that in February the country's net foreign reserves fell by 31.8 million dollars to 1.83 billion dollars. The reserves are enough to cover three months of imports of goods and non-factor services, when the operations of the foreign exchange mega-projects are excluded.

The Monetary Policy Committee also decided that the central bank will intervene in the inter-bank markets to ensure that, by the end of March, the monetary base does not exceed 66.443 billion meticais.

But the bank has been finding it difficult to bring the monetary base under full control. In February, the monetary base shrank by 1.28 billion meticais, much less than hoped. On 29 February, the monetary base stood at 69.899 billion meticais, well above the target figure of 68.163 billion meticais.

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