Mozambique: Reference rate to remain at 21.2%

The Mozambican Banking Association (AMB) announced on Friday that the reference interest rate for credit operations in Mozambique will remain at 21.2% in August, after six decreases since the beginning of the year. This rate, known as the “prime rate”, had been falling since 2018 until it reached a minimum of 15.5% in February 2021, when the trend reversed, and the rate began to rise until it reached 24.10% in July last year.

In January 2024, the rate returned to the values of April 2023 (23.5 %) after six consecutive months at highs of 24.10%, remaining unchanged in February by the AMB’s decision at 23.50%. It then fell in March to 23.10%, in April to 22.70%, in May to 22.30%, in June to 22%, and in July to 21.20%.

Increases in the prime rate are associated with the central bank raising the monetary policy interest rate (MIMO rate, which influences the formula for calculating the prime rate) to control inflation. The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided on 31 July to lower the main MIMO interest rate from 15% to 14.25%, justifying it with the prospect of inflation remaining in single digits in the medium term.

“This decision is underpinned by the continued consolidation of the inflation outlook in single digits in the medium term, in a context where the uncertainties associated with the projections remain favourable,” said the governor of the Bank of Mozambique during the presentation of the measures taken by the CPMO. The central bank and AMB agreed in 2017 to create the prime rate to eliminate the proliferation of reference rates on the cost of money.

At the time, it was launched with a value of 27.75%.

The promoters explained that the aim is for all credit operations to be based on a single rate, plus a margin (“spread”), which will be added to or subtracted from the “prime rate” by analysing the risk of each contract.