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Maputo – In its attempts to check inflation and the depreciation of the national currency, the metical, the Bank of Mozambique has raised its key interest rates for the second consecutive month.
A statement from the Bank’s Monetary Policy Committee, which met on Monday, announced an immediate increase in the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) by 50 base points. This interest rate thus rises from 7.75 to 8.25 per cent.
This is a return to the rate charged by the bank in 2013-14. It was reduced to 7.5 per cent in November 2014, and stayed at that figure until last month when it was raised to 7.75 per cent,
The statement announced also that the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) rises by 75 base points, from two per cent to 2.75 per cent. The Compulsory Reserves Coefficient – the amount of money that the commercial banks must deposit with the Bank of Mozambique – rises by 150 base points from nine to 10.5 per cent.
Explaining the increases, the statement said “faced with the growing risks of the external and domestic conjuncture, in a context where projections for inflation in the short and medium term point to the need for redoubled caution, the Committee thought it important to strengthen the current cycle of monetary policy, which will contribute towards ensuring that macro-economic stability is maintained in the country”.
Inflation increased sharply in October. According to the consumer price indices for the three largest cities (Maputo, Nampula and Beira), compiled by the National Statistics Institute (INE), the rate of inflation for the month was 2.1 per cent, the highest inflation in a single month since December 2010.
This pushed the inflation rate since January to 3.63 per cent. The yearly inflation rate (1 November 2014 to 31 October 2015) was 4.74 per cent.
The Monetary Policy Committee blamed the jump in inflation on the effects of the depreciation of the metical, and the increase in certain “administered prices”. By far the most important of these was the bread price, which rose by an average of 27.7 per cent in the three cities in October.
The exchange rate of the metical on the last day of October was 42.01 to the US dollar on the Inter-Bank Exchange Market (which compares with 40.04 to the dollar at the end of September). On the Interbank market, the metical had lost 35.05 per cent of its value since October 2014.
But in the commercial banks and foreign exchange bureaus the metical fared worse. The average exchange rate in the commercial banks on 31 October was 44.99 to the dollar, and in the exchange bureaus it was 45.17.
Depreciation accelerated in the first fortnight of November. The inter-bank rate cited on Tuesday by the Bank of Mozambique was 46.5 meticais to the dollar. The largest commercial bank, the Millennium-BIM, also on Tuesday, gave a buying rate of 49.25 meticais to the dollar and a selling rate of 50.24.
But the metical did not decline so severely against the South African rand, the currency of Mozambique’s main trading partner. At the end of October, on the Inter-bank market there were 3.04 meticais to the rand, which was an annual depreciation against the rand of 7.8 per cent.
Mozambique’s net international reserves declined by 92.7 million dollars in October and at the end of the month they stood at 2.027 billion dollars, enough to cover 3.71 months of imports of goods and non-factor services, when the operations of the foreign exchange mega-projects are excluded.
The Monetary Policy Committee also decided that the central bank will intervene in the inter-bank markets to ensure that, by the end of November, the monetary base does not exceed 66.438 billion meticais.
In October the monetary base fell by 707 million meticais to 61.312 billion meticais, well below the ceiling of 62.025 billion meticais fixed for the month. The amount of notes and coins in circulation fell by 473 million meticais in the month, and bank reserves shrank by 233 million. Since January, the monetary base has increased by 8.042 billion meticais (15.1 per cent). – AIM

November 2015
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