Maputo — The Bank of Mozambique on Wednesday cut its benchmark interest rate by 150 base points.
A statement from the Bank's Monetary Policy Committee (CPMO), said that the Interbank Money Market Rate (MIMO), falls from 18 to 16.5 per cent. The central bank's interventions on the interbank money market to regulate liquidity are based on this rate.
The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) falls by 100 base points from 19 to 18 per cent, and the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains unchanged at 12.5 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 14 per cent for local currency, and at 22 per cent for foreign currency.
Speaking at a Maputo press conference, the governor of the Bank of Mozambique, Rogerio Zandamela, said that continued low inflation justified the cut in interest rates.
The latest figures from the National Statistics Institute (INE), based on the consumer price indices for the three largest cities (Maputo, Nampula and Beira), showed that inflation for the first quarter of this year was just 1.74 per cent, and that annual inflation (1 April 2017 to 31 March 2018) was 3.05 per cent.
Zandamela said this meant it was realistic to hope for single digit inflation (under ten per cent) for 2018. The trend to low inflation has allowed the central bank to cut its interest rates repeatedly since mid-2017, and Zandamela clearly expected this to continue.
He said that the interest rates practiced by the commercial banks on the Interbank Money Market - for example, in transactions with treasury bills - have also tended to fall. In recent days, these rates have even fallen lower than the MIMO rate.
But the same cannot be said for the interest rates charged by the commercial banks on loans to their clients. These remain extortionate, often at 25 per cent or more, rates quite unjustified either by inflation or by the central bank's rates.
Zandamela admitted that the commercial banks “have not cut their interest rates as would have been desirable”. The Bank of Mozambique was in dialogue with them because “we want to collaborate with the banks rather than confront them”.
As for exchange rates, Zandamela noted that in recent weeks the Mozambican currency has staged a recovery against both the US dollar and the South African rand. He believed that central bank measures - notably raising the compulsory reserves coefficient for foreign currency to 22 per cent in February - had relaxed the pressure on the exchange market.
The metical had been quoted at 58.77 to the dollar on 8 January, but then climbed steadily to a high point of 62.92 to the dollar on 15 March. But by 10 April the rate had fallen back to 60.98 meticais to the dollar. As for the South African currency, the exchange rate had fallen in the same March-April period from 5.3 to 5.05 meticais to the rand.
Mozambique's international reserves “remain at comfortable levels”, said Zandamela. Despite large sales of foreign currency by the central bank, mostly for the purchase of fuel and to service the country's foreign debt, at the end of March the reserves stood at 3.26 billion dollars, enough to cover 7.2 months of imports of goods and non-factor services, excluding the transactions of the foreign investment mega-projects.
Asked about the fines the Bank of Mozambique had imposed on 15 commercial banks for violations of financial legislation, mostly of the law against money laundering and the financing of terrorism, Zandamela said the banks have all paid the fines (equivalent to about 5.2 million dollars) and, as far he knew, none of them were planning to appeal against the fines through the courts.
He did not go into detail on exactly which clauses of the anti-money laundering legislation the banks had violated, but he promised that the central bank will continue publishing the names of banks that commit financial offences.
“We could have been much tougher than we were”, he added.