Why does not Prime Rate go down?

The interest rates practiced by commercial banks have long outstripped the Mozambican effort, ranging from 26% to 75.5%. Despite this, the central bank, which has reduced some of its leading rates, has not altered its prime rate, which is the index base for the cost of money in Mozambique. "Lowering interest rates is not only a decision of the central bank that is taken in the void it reflects an analysis of the conditions at all times and in society," tried to clarify Rogério Zandamela. But economist Fernanda Massarongo Chivulele argues that "the focus on controlling inflation and the consequent restrictive monetary measures have a positive effect on the performance of commercial banks, with increased costs for the private sector and Mozambican families." National citizens and companies that have credit products in one of the 20 commercial banks operating in our country are suffocated. Since the end of 2015, leasing or factoring interest rates on housing or consumer loans have deteriorated. Before the discovery of the unconstitutional and illegal loans of Proindicus and MAM, which precipitated the economic and financial crisis in which we are plunged, the Prime Rate stood at 19.5% at the moment, this unique index for the Mozambican Financial System, is established at 27.5%. But to calculate the cost of money in addition to the Prime Rate is added the spread of each of the commercial banks. The most expensive Spreads on the market are practiced by microfinance institutions with Opportunity Bank to head, charging up to 48%, added to the 27 , 5% of the Prime Rate, for consumer loans and for short or long term loans. Also high are the Spreads of Socremo Bank that charges 42.25% credits for credits to Housing or Consumption and also for loans of I enjoy. Long-term loans add up to 40.25% to Prime Rate.

Among the so-called "big five" of Mozambican commercial banks that have surpassed the universal "effort rate" threshold, which is the recommended limit for a customer to pay for a loan and is established worldwide in one third of fixed income, Banco Comercial e de Investimentos (BCI), which charges up to 40% in consumer loans and 39% in short and long-term loans. Also unbearable for an honest worker are the Millennium BIM interest rates, which charge up to 39.5 % in consumer loans up to 38.5% in long-term loans and may reach 37.3% in short-term loans. Equally high are Standard Bank interest rates which may reach 38.75% for loans to consumer spending and short-term loans, and reaches 37.75% in leasing or factoring and also in long-term loans. In the face of this asphyxiating scenario, not only for citizens but also for small and medium-sized enterprises following the central bank's Monetary Policy Committee meeting on Thursday (26) and "decided to reduce the MIMO rate by 50 basis points to 21.00%. Additionally, the agency reduced the rates of the Permanent Settlement Facility (CSF) and the Permanent Deposit Facility (FPD) by 50 basis points to 22.00% and 15.50%, respectively, as well as the Compensation Reserve Coefficient ( RO) for liabilities in national and foreign currency by 100 basis points, to 14.00%, "the Bank of Mozambique questioned why the Prime Rate does not fall?

"If you remember the definition of Prime Rate also includes a part of the interest rate that reflects monetary policy decisions, the MIMO rate is very much attached. So it is expected that the Prime Rate will also decline, but it is not the only component of Prime Rate, but everything else if nothing changes in principle Prime Rate should also fall as a result of the measure we take if other factors that also determine the Prime Rate do not change. But it is a combination of policy decisions, market decisions and credit institutions, it is not that the Bank (of Mozambique) forces a Prime Rate "tried to clarify Rogério Zandamela.

Tax consolidation and state reforms condition declines in interest rates. 

Faced with insistence and the question whether interest rates would not be unbearable, Zandamela acknowledged that "interest rates remain high. They are high, we have recently been reducing, but they are not yet at the levels we would like to see. We believed that at this time of year the short-term interest rates, which are those we control, would be at relatively lower levels than those we are today. " "But unfortunately for a combination of factors, both domestic and international, risk factors, the conditions were not designed for that to happen. That would be irresponsible on our part, within the Legislator's mandate, to lower interest rates in a way that does not reflect the reality we face, "said the Governor of the Bank of Mozambique. Zandamela also revealed that "if there is one thing that we debate intensely and emotionally, with all the necessary passion is the question of the level of interest rates. And we always ask ourselves what can we do, Banco de Moçambique, so we can lower interest rates to levels that society wants and asks for, and what is needed. The conditions are not only monetary part, it is the fiscal, they are reforms. So the process of fiscal consolidation and certain reforms, which have already begun and have been happening, was slower than anticipated. " Without pointing a finger at the reforms and actions that belong to the government of Filipe Nyusi Rogério Zandamela explained that the central bank can not "lower interest rates without these conditions existed, would be shot a shot in the foot, we would go back in terms of loss of reserves, in terms of greater volatility in the exchange, in terms of higher inflation than we have today. We have today inflation on a single digit because it was a great result of this caution that we have, and since our main objective as a central bank is low inflation, in the interest of society, we have been prudent and we will continue to be prudent ".

Banco de Moçambique's monetary policy protects profits of commercial banks during the crisis.

"But I also want to be frank, as I said we have inflationary tendencies that are there, we do not know what magnitude they are. There are risks that could materialize that we can not even define them today, so it is up to us again, fulfilling the mandate that the Legislator did not give, if the technical evaluation of the situation is such that it compels us, it is not what we want to do , we will have to do what we have to do, this is our position. 

"The Governor of the Bank of Mozambique also stated that" I hope and I pray that we will not go there tendency, but if that is what conditions demand we will have to act. In summary, lowering interest rates is not only a decision of the central bank that is taken in the void it reflects an analysis of the conditions at all times and in society. "But according to economist Fernanda Massarongo Chivulele" monetary policy focused on the inflationary aggregates and the exchange rate ends up being another barrier that undermines the development possibilities of a private sector (financed by the domestic financial sector) that can respond to domestic demand, replace imports and thus reduce pressures on the balance On the other hand, the economist who studies the behavior of interest rates in Mozambique for several years argues in an article in the publication of the Institute of Social and Economic Studies (IESE) "Challenges for Mozambique 2017", noted that "the monetary policy, to a certain extent, protects banks' profits at a time when Mozambique's economy to some shock. That is, the focus on inflation control and the consequent restrictive monetary measures, which include increases in benchmark interest rates in times of economic shock or increase in Treasury bills, have a positive effect on the performance of commercial banks, with increased costs for the private sector and Mozambican families.