Mozambique Holds Key Interest Rate as Inflation Seen Peaking

MAPUTO (Capital Markets in Africa) – Mozambique’s central bank held its key lending rate, with inflation expected to peak as the debt-distressed nation’s currency stabilizes.

The Monetary Policy Committee kept the benchmark rate at 23.25 percent, Governor Rogerio Zandamela told reporters Wednesday in the capital, Maputo.Banco de Mocambique has raised the monetary policy rate by a total 13.5 percentage points in past meetings this year to try stem spiraling consumer prices in the coal-producing country.

Consumer prices have more than doubled since January and climbed 25.5 percent in October from a year ago. The metical has weakened 34 percent against the dollar this year as a freeze in donor aid exacerbated a shortage of foreign exchange that resulted from a drop in commodity-export receipts, making it one of the continent’s top-three worst-performing units in 2016.

Inflation will reach about 27 percent at the end of this year and “should continue to decelerate in 2017,” Zandamela said. The MPC is vigilant about monitoring local risks and may take “necessary corrective measures” before it next meets on Feb. 14, he said.

Inflation is close to peaking, and the currency has stabilized, the International Monetary Fund said Tuesday. The economy will expand by 3.4 percent this year, almost half the pace of 2015, it said.

The southern African nation’s economy struggling under mounting debt after the global commodity slump, coupled with a freeze on aid, put its finances under strain. The government owned up in April to the existence of $1.4 billion of previously undisclosed borrowing, including loans taken out by state-owned companies.