Mozambique Central Bank Trims Rates for Second Time This Year

MAPUTO (Capital Markets in Africa) – Mozambique’s central bank cut rates for the second time this year as price growth continued to moderate.

The Monetary Policy Committee reduced the permanent lending facility rate to 22.5 percent from 22.75 percent, Governor Rogerio Zandamela said in a statement on the Maputo-based bank’s website. Inflation slowed to 16.2 percent in July, the lowest since April 2016, having peaked at 26.8 percent in November.

“The prevalence of risks to the inflation outlook requires prudence in monetary policy,” Zandamela said. Extreme climate conditions, volatility in commodity prices and in the political environment of neighboring countries, especially South Africa “can impact the desired trajectory in prices of goods and services,” he said.

The economy of Mozambique, which produces coal and is developing gas fields that may make it the fourth-biggest exporter of liquefied natural gas globally, is struggling under mounting debt after the global commodity slump. This, coupled with a freeze on aid, put its finances under pressure. The government owned up in April 2016 to the existence of $1.4 billion of previously undisclosed borrowing, including loans taken out by state-owned companies.

This week, South African President Jacob Zuma narrowly survived yet another a no-confidence motion in parliament. Under his stewardship, the country has slipped into recession, lost its investment-grade credit rating, and seen its unemployment rate reach a 14-year high.

The committee in April introduced an interbank rate, known by its Portuguese acronym MIMO, at 21.75 percent. It reduced this to 21.5 percent, the governor said.

While the Finance Ministry announced in October it was seeking to restructure three loans totaling $2 billion, negotiations with creditors have yet to start. The government has since missed payments on all three debts.