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Central Bank Keeps Interest Rates Unchanged

Maputo — The Monetary Policy Committee (CPMO) of the Bank of Mozambique, meeting in Maputo on Wednesday, decided to keep the central bank’s key interest rates unchanged.

According to a statement from the CPMO, signed by the governor of the Bank, Rogerio Zandamela, the Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, remains 10.25 per cent.

Likewise, 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 13.25 per cent, while the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains 7.25 per cent.

The CPMO also decided to hold the compulsory reserve coefficient, the amount of money that the commercial banks must deposit with the Bank of Mozambique, steady at 11.5 per cent for local currency and 34.5 per cent for foreign currency.

The CPMO said the decision to hold rates steady “is justified by the continued prospects that price rises will speed up in the medium term, associated with high risks and uncertainties, in a context where a slow resumption of economic activity is expected in 2021”.

Annual inflation was likely to increase in the short to medium term, but would remain in single digits (i.e. less than 10 per cent). At the end of November annual inflation was 3.27 per cent, a slight increase on the October figure of 3.2 per cent.

There would be a real, albeit slow, increase in Mozambican GDP in 2021, “stimulated by the implantation of the natural gas projects, and by a trend towards a recovery in the demand for Mozambican exports, following the discovery of vaccines against Covid-19”, the CPMO forecast.

However, it warned that “solid and sustainable growth in economic activity requires the deepening of structural reforms”.

Monetary policy has its limits, the CPMO said, and sustainable growth over the medium term will require “the strengthening of institutions, an improvement in the business environment, the attraction of investment, and job creation”.

The country’s net international reserves were at the “comfortable” level of 3.983 billion US dollars, enough to cover more than six months’ imports of goods and services. But the Mozambican currency, the metical, is continuing to depreciate, “reflecting the risks and uncertainties prevalent in the domestic economy”.

The CPMO warned of increased pressure on the public finances, arising from increased defence and security expenditure, to deal with the threat from terrorism in the northern province of Cabo Delgado, plus the social support for the hundreds of thousands of people displaced by the terrorists. Added to this is the logistical effort required to distribute a Covid-19 vaccine some time in mid-2021

Much of this, the CPMO says, will be financed by domestic indebtedness, through the issuing of high interest bearing treasury bills and bonds.

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