At its last Monetary Policy Committee (CPMO), the BoM decided to reduce the interest rate (MIMO) from 12.75 per cent to 12.25 per cent, as well as the coefficients of Mandatory Reserves for liabilities in domestic currency (metical) from 39 per cent to 29 per cent and in foreign currency from 39.50 per cent to 29.50 per cent.
On Tuesday 28 January, the Confederation of Economic Associations (CTA) met the press to comment on the central bank’s new measures, considering them legitimate and welcome, but stressing that they should be reinforced by making more foreign currency available to the market.
Speaking to the media, the CTA explained that it had already presented the BoM with additional proposals, namely signalling the incentive for commercial banks to apply moratoriums to their clients, in the context of the post-election demonstrations. This measure would include the temporary easing of prudential requirements, such as limits on the constitution of provisions for impairments and overdue loans. According to the CTA, such an approach would allow banks greater flexibility to renegotiate credit payment terms with affected companies.
In addition, the confederation recommended temporarily resuming the supply of foreign currency to the market, covering 50 per cent of fuel import bills.
According to the CTA, the BoM has only implemented two measures: the reduction of the MIMO rate and the compulsory reserve coefficients. ‘Although this is a positive measure, bringing some relief to the market and gradually restoring confidence, it is rather conservative, unlike the stance taken at the time of the rate increase, when it doubled,’ said Paulo Oliveira, vice-president of the CTA’s Communication and Information Services department.
Justifying the CTA’s position, he explained: ‘In the Interbank Foreign Exchange Market (MCI), liquidity remains low and with limited sources. Even so, the BoM ‘sucked’ foreign currency out of the market through the Compulsory Reserves, estimated at 113.4 million meticals (1.8 million dollars), as well as around 18 billion meticals (286 million dollars) through various purchases of foreign currency on the market.
In total, the financial regulator withdrew around 132.3 billion meticals (2.1 billion dollars) in 2024, an amount that served to feed the international reserves, keeping them at the import cover level of over five months. Subsequently, this currency was used essentially to cover external public debt servicing needs, since at no time did the BoM feed the market.’
Paulo Oliveira
The CTA recognised that the CPMO’s decision to reduce the Mandatory Reserves coefficient could free up liquidity for the system. ‘There is no doubt that liquidity in foreign currency could alleviate the needs of companies, which have been accumulating unfulfilled requests for foreign currency for imports on the market,’ said Oliveira.
According to the organisation, liquidity constraints in foreign currency could affect the process of importing equipment and accessories by companies impacted by the post-election demonstrations, delaying the resumption of their productive activities.
‘Therefore, this decision to reduce the coefficient of Mandatory Reserves in foreign currency should be reinforced with further reductions and interventions in the ICM, making foreign currency available. In addition, the Bank of Mozambique must curb the process of buying foreign currency on the market so as not to further suffocate the already limited sources,’ he warned, emphasising that the measures need to be complemented with the rapid introduction of the Loan Guarantee Fund and, in the medium and long term, with the reform of the monetary policy framework.
Donald Trump’s measures could affect the availability of foreign currency in the country
At the meeting, the CTA’s executive director, Eduardo Sengo, warned of the possibility of some decisions by Donald Trump, President of the United States of America (USA), affecting the entry of foreign currency into the national market.
‘One of his decisions is to freeze projects, both those aimed at Africa and those aimed at any part of the world. This will undoubtedly affect the inflow of foreign currency through these projects, which were already underway and financed by the US. They could be frozen for 90 days. These projects were also a source of foreign exchange,’ Sengo explained.
Eduardo Sengo
The executive director emphasised that the impact of these measures could be significant, affecting around 25.2 billion meticals (400 million dollars), with final decisions on the issue only possible in three months’ time.
Implications of reducing the MIMO rate
Also at the meeting, Oldemiro Belchior, vice-president of the CTA’s Financial Services Department, emphasised that the reduction in the MIMO rate implies an increase in the availability of money in the economy.
‘If the monetary policy rate is lowered marginally by 50 basis points, currently set at 12.25 per cent, this will stimulate demand for financing on the part of companies and relieve the debt service borne by credit borrowers, whether individuals or companies,’ explained Belchior.
He said that these measures have the potential to help economic recovery. ‘Whenever financial charges fall, there is a stimulus for economic expansion. If the process of normalising the policy rate materialises in the period defined by the Bank of Mozambique, we could see a more accelerated demand for financing,’ he added.
Oldemiro Belchior
On inflation, Oldemiro Belchior explained that the country suffered a post-election crisis that triggered some shocks on the demand and supply side, and that there will be a period of stabilisation. ‘This inflation, while still within the monetary target, allowed the central bank to react with bolder measures from the point of view of stimulating supply.
In other words, releasing liquidity into the economy by reducing the Required Reserves ratio will allow real household income to rise and will also stimulate business growth, since we know that one of the main constraints companies face in their growth and development is the high cost of financing.’
In conclusion, he added: ‘We don’t foresee a new outbreak of inflation, although there are some external threats, as has been said here, that in all likelihood the suspension of US government financial aid to some countries could freeze the disbursement of funds that were already programmed for certain projects and limit access to foreign currency.’
Text: Nário Sixpene
