Mozambique Central Bank Hikes Policy Rate to Curb Inflation in April

MAPUTO, Mozambique, Capital Markets in Africa —The Bank of Mozambique has decided to increase key policy interest rates to the highest level in four years , in its efforts to curb inflationary pressure.

The  Bank’s Monetary Policy Committee, which met in Maputo on 20 April, 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 rise immediately by 200 base points, from 10.75 to 12.75 per cent,  the highest since June 2012, according to the press release by the central bank on its website.

This rate had been falling since late 2012. It reached 7.5 per cent in November 2014, and remained at that level for a year, but rate rises in October, November and December 2015 and in February 2016 brought it back to 10.75 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) was hiked by 150 base points from 4.25 to 5.75 per cent.

Furthermore, the Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique – has been divided into two. For reserves in local currency, the coefficient remains unchanged, at 10.5 per cent. But for reserves in foreign currency, it rises to 15 per cent, which must be deposited in US dollars. This change will only take effect as from 7 June, while the interest rate changes are immediate, the Bank noted in the statement.

Inflation accelerated to 12.2 percent in February compared with 2.2 percent six months earlier, according to the National Statistics Institute. The economy grew 5.6 percent in the fourth quarter of 2015, compared with 4.6 percent a year earlier, the statistics office stated in February.

The Monetary Policy Committee noted that the current situation “remains characterized by sharp risks of inflationary pressure”. This results from the recent depreciation of the metical, plus the severe drought in southern and central Mozambique, and the localized floods in the north – all of which has been made worse “by the politico-military tensions which are limiting the free circulation of people and goods along some of the country’s main roads”.