Mozambique Cuts Interest Rate as Inflation Slows to 2015 Low

MAPUTO (Capital Markets in Africa) – Mozambique’s central bank reduced its benchmark lending rate for the fifth consecutive time as inflation slowed, allowing the regulator to try to spur an economy that’s forecast to expand at the slowest pace in 18 years.

The Monetary Policy Committee cut the benchmark interbank rate, known by its Portuguese acronym MIMO and introduced in April, by 150 basis points to 16.5 percent, Banco de Mocambique Governor Rogerio Zandamela told reporters Wednesday in Maputo, the capital. It reduced the permanent lending facility rate to 18 percent from 19 percent.

The International Monetary Fund expects the economy to grow 3 percent this year, which would be the weakest expansion since 2000, according to data from the Washington-based lender. Both the IMF and the World Bank have called for the regulator to cut rates more aggressively to boost economic growth that plunged after the government owned up to $1.4 billion in previously undisclosed debt in 2016.

The benchmark interest rate is 13.4 percentage points above consumer-price growth, which was 3.1 percent in March and 2.9 percent in February, the lowest since August 2015.

The budget shortfall, on a cash basis, probably widened to 8.2 percent of gross domestic product last year from 7.6 percent in 2016, according to the International Monetary Fund.

“The need to partially fund Mozambique’s budget deficit domestically, together with limited external financing options for now, should put a floor on rates,”Samantha Singh, a Johannesburg-based strategist at Absa Bank Ltd., said by email.

Source: Bloomberg Business News