Mozambique Says Tight Monetary Policy Is Starting to Bear Fruit

MAPUTO (Capital Markets in Africa) -Mozambique’s metical is stabilizing and the inflation rate is forecast to drop after an aggressive rate hike by the central bank in October, according to Governor Rogerio Zandamela.

“The most recent information reported in the last quarter of the year is more encouraging,” Zandamela told reporters Monday in the capital, Maputo. “We noted that monetary adjustment has begun to produce the desired effects.”

Inflation, which accelerated to 26.8 percent in November, will probably quicken to 27 percent by the end of the year, then begin a decline in 2017, said Zandamela, a former International Monetary Fund employee who’s been at the helm of the central bank since August. 

Banco de Mozambique has increased its benchmark rate by 13.5 percentage points this year to stem a declining currency in the wake of a global commodity price rout and a debt crisis at home that was triggered by Mozambique’s decision to keep $1.4 billion in public debt hidden from investors.

The currency has strengthened 9 percent against the dollar since the end of September after plunging 67 percent in the first nine months of the year, Zandamela said.

“We have strong reasons to believe that inflation has started a cycle of slowing down,” a trend that will continue in 2017, with a target of 14 percent, he said.

While economic expansion slowed to 4 percent in the first nine months from 6.8 percent a year ago, the government is targeting a 5.5 percent increase in output in 2017, Zandamela said. The World Bank forecasts 5.2 percent growth next year.

“In addition to strengthening monetary and fiscal policy coordination, we believe it is appropriate to continue to work hard to recover the reputation and credibility of the country and its institutions at the international and domestic levels,” he said.