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Economists Say Interest Rate Cuts are “Good” and “Reasonable

Economists Say Interest Rate Cuts are “Good” and “Reasonable

Egas Daniel says that the reduction in the interest rate, from the old 17.25 per cent to 16.50 per cent, is a reasonable decision by the Bank of Mozambique. As for its effects on the economy, the economist believes that the decision is merely a release of expectations. Meanwhile, Arlindo Langa, also an economist, says that the decision is very good for the national economy.

The Bank of Mozambique reduced the reference interest rate from 17.25 per cent to 16.50 per cent, a decision it hadn’t made since 2020.

This means that the interest to be paid to banks when lending money could also be reduced.

The decision comes as no surprise to economist Egas Daniel, who says that it was “expected” and adds that it is a “reasonable” measure on the part of the regulator, Banco de Moçambique, and “aligns with the context of the recovery of the economy and the good performance of indicators, such as inflation”, although “we can’t yet say that we are relieved, the tight belt has eased a little, it’s still tight, but less than before, this reveals “a favourable trend for the coming period”, he concluded.

On the other hand, when he analyses the same decision from the point of view of the impacts and effects it could have directly on the economy, Egas Daniel is no longer optimistic, as he believes that “it’s more of a launch of expectation, because at the level the rate is at, however much there has been this reduction, good, more than creating incentives to increase credit to the economy, increase investment and increase employment and economic growth, for me, it’s the signal this sends out to the economy.

This “signal” is what will “de-anchor expectations and allow economic agents to invest more confidently and have better expectations in terms of returns and profitability for the coming months,” explained Egas Daniel.

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Arlindo Langa, meanwhile, foresees greater economic growth, given that he considers the reduction in interest rates to be “good” for the national economy, since “it means increased investment in the economy and makes money cheaper and companies less viable, but they now have resources that allow them to invest and employ more people,” he said.

According to the governor of the Bank of Mozambique, the reduction in interest rates is only the beginning of the normalisation of rates. In three years, Zandamela believes, it could be around 10 per cent.

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