Some economists heard today (5) by the DE considered the increase in compulsory reserve coefficients, announced last Wednesday by the Bank of Mozambique (BoM), in which liabilities in national currency rose from 28 percent to 39 percent, and in foreign currency from 28.5 percent to 39.5 percent, “aiming to absorb excessive liquidity in the banking system, with the potential to generate inflationary pressure,” to be very high.
For analysts, this is 11 percentage points (pp) quite significant and high, which means that commercial banks will no longer have the necessary liquidity to be able to continue with the provision of credit to consumers which, by the way, is their business.
Estrela Charles, an economist and researcher at the Centre for Public Integrity (CIP), a Mozambican non-governmental organisation, told DE that as a direct impact of this measure, the level of investment in the economy will fall, as there will be a shortage of national and foreign currency on the market. As such, “the central bank is showing, once again, that the monetary policy carried out throughout 2022 did not have the expected economic effects, which would be the reduction of the inflation rate. What happened with the BoM’s policy was that last year we saw a more restrictive economy in terms of production, or in other words, it was affecting companies’ production capacity due to a lack of access to funding,” she explained.
In the economist’s opinion, the increase in coefficients is doomed to failure if it is isolated and if it doesn’t take into account the structural nature of the dynamic of inflation in the country.
“We know very well that our inflation is not caused directly by the issue of excess liquidity in our economy. It is an inflation caused also on the supply side and on the production side”, stressed the researcher, adding that the decision “will have no effect if it is not reconciled with fiscal policy”.
Aligning on the same argument, Egas Daniel, an economist and coordinator of the programme in Mozambique of the International Growth Center (IGC) of the London School of Economics, believes that the measure will not solve the spiral of inflation, as it is conditioned by “structural problems.”
“It means that [companies] will pay off their debts at a much higher cost,” and so this measure “may jeopardise the profitability and continued operations of many of them. This is the harmful part that accompanies these measures of a restrictive nature,” said the economist, stressing that the profitability of companies’ investments is compromised.
Daniel also noted that “no company plans to make investments based on loans or bank financing, in a context where interest rates are so high. On the other hand, the survival of “some small banks” is at risk, he added, because they have to deal with “already extraordinary squeezes” imposed by the regulator.
The economist also expressed doubts about the argument that excess liquidity is causing inflationary pressure, arguing that the rise in prices in Mozambique is caused by structural factors, such as weak production and productivity of the economy. In this sense, the central bank “cannot find an economic structure that allows the measures to be effective.
Elcídio Bachita, an economist and university lecturer, said the decision to increase the reserve requirement coefficients imposed on commercial banks was risky.
“I would say that it is not exactly a prudent measure,” looking at the state of the economy, explaining “that, naturally, this will have its repercussions, because the commercial banks will have fewer financial resources to finance the economy.
Bachita also told Lusa that the Bank of Mozambique “is acting in isolation, without coordinating with other actors in the national economy, because monetary measures alone are not proving effective in combating inflation.