The Monetary Policy Committee (MPC) of the Bank of Mozambique decided yesterday to raise the MIMO rate by 300 basis points (bp) to 13.25 percent.
The MIMO is the benchmark for calculating the interest rate that commercial banks apply to their customers.
The Central Bank justifies its decision with “a substantial upward revision of the medium-term inflation outlook, reflecting the continued depreciation of the Metical, in an environment of increased risks and uncertainties, in particular the negative consequences of the accelerated spread of Covid-19 and the occurrence of natural disasters, in addition to military instability.
The CPMO also decided to increase the interest rates of the Deposit Facility (PFD) and the Sending Facility (FPC) by 300 bp, to 10.25% and 16.25%, respectively, and to maintain the Compulsory Reserves (RO) coefficients for liabilities in national and foreign currency at 11.50% and 34.50%, respectively.
In a press release, the Bank of Mozambique (WB) also noted that the short and medium term prospects pointed to a significant increase in inflation.
“Annual inflation increased for the fourth month in a row, from 2.98% in September to 3.52% in December 2020. Core inflation, which excludes the prices of managed goods and services and fruit and vegetables, rose over the same period from 2.92% to 5.10%, with prospects of worsening in the coming quarters,” he said.
At the same time, he adds, “general inflation is expected to accelerate over the medium term, reflecting the effects of the Metical’s depreciation on domestic prices, the expiry of part of the government’s price containment measures under the Covid-19 and climate shocks”.
It should be noted that in recent times there have been some risks and increased uncertainties, in particular the rapid spread of Covid-19 and the occurrence of natural disasters, in addition to military instability in the central and northern regions of the country.
“Externally, new waves of infections and strains of the new coronavirus have emerged, despite ongoing vaccinations, as well as volatility in the prices of major commodities and the strengthening of the US dollar. These risks are expected to prevail in the short and medium term”, the WB notes.
