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BoM Keeps MIMO Rate at 17.25% and Raises Reserve Requirement Ratio

BoM Keeps MIMO Rate at 17.25% and Raises Reserve Requirement Ratio

The Bank of Mozambique – the country’s central bank – this Wednesday (31-05) left unchanged the monetary policy interest rate (MIMO rate) at 17.25%, and increased the reserve requirement ratios of commercial banks. The measures aim at keeping inflation under control, a statement explains.

According to the bank’s Monetary Policy Committee (CPMO), the decision to keep the MIMO rate at the level to which it rose eight months ago “is supported by the prevalence of high risks and uncertainties associated with the projections, despite the prospects of single-digit inflation in the medium term”.

On the other hand, the regulator decided to raise the reserve requirement ratios (RRR) for liabilities in local currency from 28% to 39%, and in foreign currency from 28.5% to 39.5%, “with a view to absorbing excessive liquidity in the banking system, with the potential to generate inflationary pressure”.

Year-on-year inflation in the country slowed down in April to 9.6%, the lowest value in 12 months, thanks to the reduction in food prices on the international market, in a context of favourable exchange rate evolution.

Nonetheless, the central bank’s CPMO presents as risks “the pressure on public expenditure, in a context of weak revenue collection” and “uncertainties regarding the evolution of the price of administered goods, especially fuel”.

Externally, uncertainty is mainly related to the war in Ukraine and its effects on world markets.

“For the medium term, the prospects for single-digit inflation are consolidated, resulting from the impact of the measures that have been taken by the CPMO” and provided that there is “maintenance of exchange rate stability and the tendency to reduce the prices of import goods in the international market”, the statement explains.

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The CPMO nevertheless maintains the prospects of moderate economic growth, after announcing economic growth of 4.2% in the first quarter, “essentially reflecting the good performance of the extractive industry”.

The CPMO also points out in the note that “domestic public debt has increased”, now standing “at 302.8 billion meticais, which represents an increase of 27.7 billion meticais compared to December 2022”.

The next ordinary meeting of the CPMO is scheduled for July 26th.

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