CENTRAL BANK LEAVES INTEREST RATES UNCHANGED

Despite continued pressure on the Mozambican currency, the metical, the Monetary Policy Committee of the Bank of Mozambique has once again decided to keep the central bank’s key interest rates unchanged. A statement from the Committee, issued after its monthly meeting on Monday, announced that the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) will remain at 7.5 per cent. This rate was cut in November 2014, by 75 base points, from the previous rate of 8.25 per cent which had been in force for the previous year.  The statement announced that the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 1.5 per cent, and the Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique – is also unchanged at eight per cent.

This is despite a continuing fall in the value of the metical, which the Committee blames on the strengthening of the dollar on international currency markets, and the deterioration in Mozambique’s balance of payments due “an unfavourable international conjuncture in the price of raw materials”.

At the end of June, the dollar was quoted on the Inter-Bank Exchange Market at 39.03 meticais. This was a depreciation of the metical over the month of 13.03 per cent, and of 23.55 per cent since the start of the year. From 1 July 2014 to 30 June 2015, the metical depreciated by 27.03 per cent against the dollar.In the commercial banks, the average exchange rate on the last day of June was 39.96 meticais to the dollar.  There was a slight recovery in the first fortnight of July. On Tuesday, the Interbank Exchange selling rate published by the bank of Mozambique was 38.12 meticais to the dollar. The selling rate of the largest commercial bank, the Millennium-BIM, was 38.56 meticais to the dollar.   Perhaps of more concern is the depreciation of the metical against the South African rand. The rate fell to 3.21 meticais to the rand at the end of June, a fall of 12.3 per cent over the month, and an annual depreciation of 11.07 per cent. Again, there has been a slight recovery this month, and the selling rate quoted by the Bank of Mozambique on Tuesday is 3.05 meticais to the rand.  The Monetary Policy Committee also decided to intervene on the inter-bank markets to ensure that the monetary base does not exceed 60.075 billion meticais (1.576 billion dollars). In June the monetary base increased by 1.601 billion meticais to read 56.673 billion, which was 1.556 billion meticais below the ceiling for the month.

The statement noted that, according to the consumer price index for the three major cities (Maputo, Beira and Nampula), inflation in June was minus 0.46 per cent. This was the third consecutive month of deflation. The falling prices between April and June mean that, as calculated by the National Statistics Institute (INE), inflation for the first six months of the year is only 0.93 per cent. Judging from previous years, negative inflation is likely to continue in the next few months, as the harvest comes in, before prices resume an upward trend towards the end of the year.   The Committee added that the country’s net international reserves increased by 146 million dollars in June, to reach 2.6 billion dollars, 50 million dollars above the target for the period. These reserves are enough for 3.85 months of imports of goods and non-factor services, when the operations of the foreign investment mega-projects are excluded. This was an increase when compared with May, when the reserves covered 3.65 months of imports.

The general fall in international commodity prices is a mix of good and bad news for Mozambique. The fall in oil prices certainly cuts the country’s bill for fuel imports (although, since these are denominated in dollars, the depreciation of the metical erodes this gain). The price of the benchmark Brent crude fell by 3.5 per cent in June, and by 41.8 per cent over the past year. Oil prices continued to fall in early July. The price of a barrel of Brent crude fell from 63.26 to 58.3 dollars between 30 June and 10 July. Mozambique will also benefit from the fall in the world market price of rice by 35.5 per cent between July 2014 and June 2015.But key Mozambican exports also saw their prices fall. Aluminium (still Mozambique’s largest export) fell in price by 2.8 per cent in June, and thermal coal by 2.6 per cent. The price of natural gas rose by 6.1 per cent, but over the past year the price was down by 36.4 per cent.