Central Bank Keeps Interest Rates Unchanged
Maputo, 25 Jan (AIM) – The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Wednesday, decided to keep its benchmark interest rate, the Monetary Policy Interest Rate (MIMO), unchanged at 17.25 per cent.
This is the rate used by the central bank in its interventions on the interbank money market to regulate liquidity. The rate rose from 15.25 to 17.25 per cent last September.
In a press statement, the CPMO said the decision not to alter interest rates was due “to the prevalence of the high risks and uncertainties underlying the forecasts for inflation, notably the impact of the liquidity generated in the economy, resulting from the pressure on public expenditure, and the continued geopolitical tension in Europe”. This was despite the expectation that, in the medium term, annual inflation will return to less than ten per cent.
The CPMO also ordered a sharp increase in the compulsory reserves that the commercial banks must deposit with the Bank of Mozambique. For local currency, the reserves rise from 10.5 to 28 per cent, and for foreign currency from 11.5 to 28.5 per cent.
The CPMO said the purpose of this rise is to absorb excessive liquidity in the banking system, which is generating inflationary pressures.
There were great uncertainties, the CPMO said, about the impact of excessive liquidity on macro-economic indicators, and the effects of climate shocks on the supply and sale of produce. Outside of Mozambique, “uncertainties remain about the effects of the extension of the conflict between Russia and Ukraine”, and the risks of a global economic recession.
Nonetheless, the CPMO was optimistic that Mozambique’s annual inflation will continue to fall. It fell from 10.62 per cent in November to 10.29 per cent in December. The CPMO said this reflected falling food prices, and a cut in the price of cooking gas.
Public debt remains high, the CPMO noted. In January it reached 288.7 billion meticais (about 4.5 billion US dollars), 13.6 billion more than in December.
The CPMO said it will “continue to monitor the risks and uncertainties associated with the inflation forecasts, and will not hesitate to take the corrective measures necessary”.