The Metical is the currency that has appreciated the most since the beginning of the year, gaining 17% against the dollar and improving to the level of January 2020, with analysts predicting further short-term gains.
According to a survey of the relationship between the Metical and the dollar carried out by Lusa news agency, the national currency has appreciated 17 percent since the beginning of the year, when 75 meticais were needed to buy one dollar, while last Friday 62 meticais were enough, according to the average exchange rate.
According to analysts at Rand Merchant bank, the appreciation of the Metical is expected to continue in the coming weeks due to excessive dollar liquidity on the market and the actions of the Bank of Mozambique.
“Due to the liquidity of dollars in the market, in a context where mining activity is gaining traction, we expect the Metical to strengthen and anticipate that the Central Bank will allow this growth in US currency liquidity, which should further strengthen the Metical, to placate the effects of inflation originating from imports,” analysts Neville Mandimika and Daniel Kavishe wrote in an analysis note.
The Metical was relatively stable during January and started appreciating at the end of February, appreciating to as high as 62 meticals on Friday, taking one back to January 2020, before the Covid-19 pandemic.
The appreciation of the Metical follows a drop of about 10 percent against the dollar last year and comes against the forecasts of most analysts, who predicted an even bigger drop in the Metical this year, and comes despite the wave of violence in the north of the country, which catapulted Mozambique to the top of the international media agenda in recent weeks.
At the end of February, analysts at NKC African Economics, for example, estimated that the national currency would continue to depreciate this year, taking it to 77.7 meticais per dollar from 69.5 last year.
The rise in the Mozambican currency comes despite the downward revision of economic growth forecast for this year by the International Monetary Fund (IMF), which lowered its estimate from 2.1 percent, in October, to 1.6 percent last week and comes in the wake of measures taken by the central bank.
On 17 March, the Monetary Policy Committee (CPMO) of the Bank of Mozambique decided to keep the monetary policy interest rate (MIMO rate) at 13.25 percent, justifying the decision with the “prevalence of high risks and uncertainties, despite the downward revision of inflation prospects in the short and medium term.
A lower rise in prices is expected, “mainly reflecting the trend towards appreciation of the Metical resulting from measures taken at the last session of the CPMO, in a context of weak economic activity,” added the regulator, which in January raised the MIMO rate by 300 basis points to 13.25 percent.
According to the Bank of Mozambique, foreign exchange pressure has reduced substantially, with demand for foreign currency being “fully met,” as a result of “greater fluidity observed in the foreign exchange market, contrary to the trend recorded at the beginning of the year.
