Mozambique’s Bank Cuts Central Interest Rates Again

The Bank of Mozambique announced last week a reduction in key interests’ rates by 50 base points, with immediate effect.

The Interbank Money Market Rate (MIMO), used by the central bank for its interventions on the interbank money market to regulate liquidity, has fallen from 13.25 to 12.75 per cent.

The Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) falls from 16.25 to 15.75 per cent, while the Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) falls from 10.25 to 9.75 per cent.

The statement from the Monetary Policy Committee said reducing interest rates "is justified by the continual improvement in medium term inflation prospects".

The latest inflation figures, published last week by the National Statistics Institute (INE), show that for the last three months average prices have fallen. For the first seven months of the year, inflation was just 1.07 per cent. For the previous year (1 August 2018 to 31 July 2019) inflation was 2.16 per cent.

Thus the target of restricting inflation this year to less than 10 per cent will certainly be reached, and if current trends continue, it could well be less than five per cent.

The central bank believed prospects had become brighter with last week's signing of a peace agreement between the government and the former rebel movement Renamo, and the start of the demobilisation and disarming of Renamo.

Nonetheless, uncertainties still persisted "which justify the conservative stance of monetary policy".