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BoM: “Restrictive Monetary Policy Has Eased Inflation, But Uncertainties Persist”

BoM: “Restrictive Monetary Policy Has Eased Inflation, But Uncertainties Persist”

The governor of the Bank of Mozambique (BoM) said this Wednesday, 1 November, that the current slowdown in inflation was the result of the “restrictive monetary policy stance” adopted in recent months by the central bank, but stressed that “high uncertainties prevail”.

Speaking during the opening of the central bank’s 48th Consultative Council, which is being held in the southern city of Inhambane, Rogério Zandamela pointed out that underlying inflation, which does not take into account energy or unprocessed food prices, has even “increased in the last three months”, emphasising that “although it is not at alarming levels, the BdM is closely monitoring its evolution”.

In the same speech, Zandamela pointed out that annual inflation has even “been slowing down” since the beginning of the year, having stood at 4.6 per cent in September this year, “after peaking at 12.9 per cent in August 2022. This slowdown essentially reflects the combined effect of exchange rate stability and the restrictive stance of monetary policy, as well as the fall in food and fuel prices on the international market.”

The source also added that in transactions with foreign countries, Mozambique recorded “a 78.3% improvement in the current account deficit” in the first six months of 2023, “favoured by the reduction in imports from major projects”.

“The country has sufficient gross international reserves to cover around four months of imports of goods and services, excluding imports from major projects,” he said.

Domestically, the BdM governor recognised “the strong pressure on public spending” in the country, “in a context of weak revenue collection and limited sources of external financing”, which “is contributing to an increase in fiscal risk and domestic indebtedness”.

“The increase in spending is mainly due to the implementation of the wage reform and spending related to the electoral cycle,” he warned.

As an “example”, according to the source, the stock of domestic public debt, which in 2022 stood at 275 billion meticais, “increased by around 19 per cent in the last ten months of the year”, to 327 billion meticais, stressing that “high uncertainties still prevail as to the magnitude of the impacts of current risks”, particularly from abroad, “amplified by volatility in the financial markets, which has required increasingly prudent monetary policy action”.

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“This is how monetary policy has remained restrictive, with the interest rate – the MIMO rate – set at 17.25 per cent,” he recalled.

In addition, the head of the BdM emphasised that “it is important to stress that the excess liquidity in the banking system was exacerbated by the sudden increase in public spending resulting from the implementation of the Single Wage Scale”.

However, Rogério Zandamela pointed out that “the risks and uncertainties in the global and domestic environment are likely to worsen” in 2024, an outlook that “will continue to condition domestic economic activity and the policy measures that will be taken”.

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