MAINTAINS INTEREST RATES

The Monetary Policy Committee of the Bank of Mozambique on Monday announced that it is leaving interest rates at their current levels as it expects annual inflation to remain in single figures.It will, therefore, leave the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, at 14.25 per cent. In addition, the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) stays at 11.25 per cent whilst the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) remains at 17.25 per cent.
The Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique – also remains unchanged at 14 per cent for local currency and 27 per cent for foreign currency.
According to the Bank, “the decision to maintain the rates is based on the fact that the short and medium-term prospects continue to show that annual inflation could be in the single digits by the end of the year”.It adds that this is underpinned by expectations of falls in fuel prices on the international market and price stability among Mozambique’s main trading partners. However, the Bank recognises that there are uncertainties and risks that lead it to maintain a “prudent monetary policy”.
The statement from the Monetary Policy Committee noted that inflation remained low and stable last year with the annual inflation rate in December falling to 3.52 per cent compared with 5.65 per cent in the same period in 2017. It explained that this was largely due to lower increases in the prices of food and fuel. It also stated that the Bank expects growth in Gross Domestic Product to pick up in the last quarter of 2018 and during this year due to an increase in domestic demand and dynamism in the productive sector.The Mozambican currency, the metical, has shown a slight depreciation which the Bank explains is due to seasonal factors. Thus, the average exchange rate practised by the commercial banks rose from 61.43 to 62.25 meticais to the dollar between December and 8 February. Over the same period, the rate against the South African currency rose from 4.25 to 4.61 meticais to the rand. International reserves remained “at comfortable levels”, falling by just 84.5 million dollars to 3.014 billion dollars, which is enough to cover seven months of imports of goods and services, excluding the transactions of the foreign investment megaprojects.However, the release warns that the domestic public debt has grown slightly. In January, the debt resulting from the issuing of high interest-bearing treasury bills and bonds plus advances to the government from the central bank rose by 509 million meticais (about 8.2 million dollars). The total domestic debt now stands at 112.525 billion meticais (equivalent to 12.8 per cent of Mozambique’s GDP).