Mozambique: Central Bank Holds Interest Rates Steady

Maputo — The Monetary Policy Committee (CPMO) of the Bank of Mozambique, meeting on Thursday in the southern city of Xai-Xai, decided to leave the bank's key interest rates unchanged.

Thus the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains 12.75 per cent.

The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) remains 15.75 per cent, while the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains 9.75 per cent.

There is also no change in the compulsory reserves coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique. This is still 36 per cent for foreign currency, and 14 per cent for local currency.

The CPMO announced that the decision to leave the MIMO rate unchanged "is based on fears that the recent worsening of internal and external risks could, in the medium term, reverse the current profile of low and stable inflation".

The risks that stand out, the CPMO, said are climate shocks, and military instability in northern and central Mozambique, and increased commercial and geopolitical tensions internationally.

But, despite these risks, the central bank's medium term forecast is that inflation will remain low. This forecast is based on the stability of the Mozambican currency, the metical, "in an environment of low domestic aggregate demand", and the prospects of falling international oil and food prices.

Inflation in recent months has been almost stationary. According to the latest figures issued by the National Statistics Institute (INE), based on the consumer price indices of the three largest cities (Maputo, Nampula and Beira), inflation so far this year (January to September) was only 1.28 per cent. Inflation over the past year (1 October 2018 to 30 September 2019) was 2.01 per cent.

Mozambique's gross foreign reserves, the CPMO release added, have risen to slightly more than 3.9 billion US dollars, enough to cover six months worth of imports of goods and services, excluding the transactions of the foreign investment financed mega-projects.

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