Mozambique’s consumer prices fall

Speaking to reporters on Tuesday, the spokesperson for the board of directors of the central bank, Antonio Pinto de Abreu, said the bank took measures to mop up excess liquidity after inflation in 2005 soared past the target set by the government, of between 7 and 8 percent.

De Abreu put the final figure for the 2005 inflation rate at 11 percent.

This is lower than the figure of 14 percent announced in January, largely because the National Statistics Institute altered the bases for calculating the consumer price index. Prices continued to rise in January and February, showing “there were still pockets of inflation in the economy”, said De Abreu.

In January, prices rose by 1,8 percent, and in February by 2,5 percent.

In March, the central bank decided to hold back inflation by raising its key interest rate, used on the inter-bank money market, from 13 to 19 percent.

“If we have excess liquidity, then we absorb it through higher interest rates”, said De Abreu.

He believed this mechanism worked.

Inflation in March was 1,5 percent, and in April just 0,1 percent.

The rate turned negative over the next two months, as prices actually fell: the inflation rate for May was minus 1,1 percent, and for June minus 0,19 percent.

So inflation for the year, said De Abreu, which had reached 6 percent in April, fell to 4,58 percent by the end of June.

A further anti-inflation mechanism, he added, was the “aggressive” sale of foreign currency to commercial banks on the inter-bank exchange market. Whereas in the first half of 2005, the central bank sold US$223 million on the inter-bank exchange market the figure for January-June this year was US$263 million.

De Abreu said the commercial banks were now showing greater confidence than in 2005, as shown by transactions between the banks that do not involve the central bank. There were 62 such operations involving US$19 million in the first half of 2005. The figures rose to 91 operations involving US$59,4 million in the same period in 2006.

De Abreu denied that the central bank took a “fundamentalist” line on the fight against inflation, and insisted that its deflationary measures did not threaten state expenditure on social services.

As for the exchange rate, De Abreu said the Mozambican currency, the metical, was now reasonably stable against the US dollar and the South African rand.

He recalled that, in the first half of 2005, the metical had depreciated by 30,3 percent. But this year, from January 1 to July 6, the depreciation, on the inter-bank exchange market, has only been 5,98 percent.

Indeed, over the past five weeks the metical has been slowly gaining value against the dollar.

The depreciation has been somewhat higher ‘ 6,11 percent ‘ in the exchange rates offered to the public by the commercial banks, and higher still ‘ 6,72 percent ‘ in the rates offered by foreign exchange bureaux. ‘ AFP.

July 2006
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