The director of the Bank of Mozambique (BM) Silvina Abreu today admitted to criticism from businesspeople that the economy may have to “bleed” in the short term, due to monetary policy, to contain inflation.
“We think that it is necessary to allow for a moment, in the short term, when the economy – because of the effects of monetary policy – may be bleeding, so to speak, but for the greater good,” she said at a meeting with the Confederation of Economic Associations of Mozambique (CTA).
“We are fighting so that, afterwards, the effect is a reduction in inflation in which all economic agents that are operating in the market can benefit from this, including families,” he added.
Asked whether the peak of the monetary policy measures had already been reached, Silvina Abreu did not commit to an answer.
At issue is the increase in compulsory reserves that commercial banks have to keep with the central bank: the regulator decided on Wednesday to raise the coefficients to 39 percent of liabilities (in the case of deposits) in national currency and 39.5 percent in the case of foreign currency.
This was the second rise of the year, and at the beginning of 2023 they were 10.5 percent and 11.5 percent respectively.
Year-on-year inflation in Mozambique slowed in April to 9.6 percent, the lowest in 12 months.
The WB justified the action, “aiming to absorb excessive liquidity in the banking system, with the potential to generate inflationary pressure,” but business owners think that the decision will make it even more expensive to obtain bank financing, which is essential in an economy of small and medium-sized enterprises, which will have more difficulties.
“We foresee many difficulties so that [businesses] can grow, prosper and generate value for the economy,” Oldemiro Belchior, vice-president of the CTA’s Financial Policy and Services portfolio, said at today’s meeting.
The increase in reserve requirements will lead to an increase in interest rates and debt service “will worsen, not only for those seeking credit, but also for those already benefiting.
“Businesses will resent” the “significant increase” in mandatory reserves, he said.
João Figueiredo, president of the Portugal-Mozambique Chamber of Commerce and with a career in Mozambican banking, said that “there will be a rise in interest rates and a penalty for the entire economy,” including large companies and families.
“We are all going to pay the consequences of this stubborn policy on inflation,” he added.
Despite admitting that there may be pressure in the short term, Silvina Abreu refuses the idea of seeing monetary policy as an eminent cause of a lack of credit for the economy.
“I wouldn’t like it to be said that it is for this reason that credit will not be given to the economy, because there have been other times of lower inflation and there was also no routing [of credit] by the banking sector to the economy,” she considered.
“There will be other factors that we could then calmly check, that lead to the economy not being prioritised in terms of credit,” he said.
The administrator suggested that banking use more “creative” ways to enable financing to the economy.
“We are doing our part,” as the central bank, he said, otherwise it could be accused of “not playing that role and having inflation growing more than desirable.
