Central bank cuts benchmark interest rate

Maputo, 1 Feb (AIM) – The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Wednesday, decided to reduce its benchmark interest rate, the MIMO rate, from 17.25 to 16.5 per cent.

A statement from the CPMO said this decision “is based on consolidation of the prospects of maintaining single digit inflation, in a context where assessment of the risks and uncertainties associated with the projections of inflation is more favourable”.

Annual inflation remains far below ten per cent, and the CPMO is confident that single digit inflation is here to stay, at least for the medium term.

The annual rate of inflation fell slightly, from 5.4 per cent in November to 5.3 per cent in December. The CPMO attributes this fall to a reduction in the prices of imported foodstuffs.

Underlying inflation (which excludes fruit and vegetables, and goods with prices set by the government) also fell, after five months of increases.

The forecast for continued single digit inflation, the CPMO claims, reflects the stability of the Mozambican currency, the metical, the likely fall in commodity prices on the international market, and the impact of the monetary measures taken by the central bank.

The CPMO warns that “pressure on domestic public indebtedness remains high”. In January 2024, the domestic debt reached 320.6 billion meticais (rather more than five billion US dollars), which was 8.3 billion meticais higher than in December.

The CPMO sees other possible factors favouring lower than expected inflation – including “the effort at fiscal consolidation, the lesser severity of extreme climatic events, and a lower than feared impact of geopolitical conflicts on the logistical chain and on international commodity prices”.

The CPMO believes conditions are now ripe for a gradual reduction in the MIMO interest rate, leading to its “normalisation” in a period of between two and three years. The statement does not reveal what a “normal” MIMO rate would be.

The pace and scale of the next changes in interest rates, the CPMO adds, “will depend on the prospects for inflation, as well as the assessment of the risks and uncertainties underlying the medium term projections”.

(AIM)

Pf/ (360)