The Bank of Mozambique (BoM) may postpone the cut in the benchmark interest rate (MIMO Rate) due to the atmosphere of tension and political instability that arose after the general elections, suggested Fáusio Mussá, chief economist at Standard Bank Moçambique.
The information was presented in the bank’s monthly PMI (Purchasing Managers’ Index) report for October, in which the economist points to the need for a more cautious approach to monetary policy in the current scenario.
According to Mussá, the political tension resulting from the post-election protests called by candidate Venâncio Mondlane could cause the Bank of Mozambique to interrupt the planned cuts in the MIMO Rate.
In September, the rate was cut from 14.25 per cent to 13.50 per cent, in line with the forecast of controlled inflation, and by one digit in the medium term. However, Mussá warned that this unstable context could lead the central bank to consider pausing interest rate cuts as a precautionary measure.
‘The tense post-election environment could lead the Bank of Mozambique to adopt a more prudent approach to normalising monetary policy. Therefore, we do not rule out a pause in cuts to the benchmark interest rate,’ the economist said in the report.
Since the beginning of the year, the reference interest rate has been cut by 375 basis points (3.75 per cent), reflecting a gradual effort to encourage economic growth through access to credit. However, real interest rates remain high due to the rate of fall in inflation, which stood at 2.5 per cent year-on-year in September.
In addition to the political challenges, the PMI report shows a slowdown in economic activity in October, with the index falling from 50.3 in September to 50.2.
This decline reflects slower growth in new orders and employment, factors that Mussá links to political uncertainty and the resulting hesitation in investment. Figures above the 50 mark indicate consecutive growth in economic activity, albeit more moderate.
The report also emphasises that recurring delays in liquefied natural gas (LNG) projects are another risk factor, contributing to a scenario of limited foreign direct investment (FDI). This situation, according to the economist, results in an insufficient supply of foreign currency and restrictions on the state budget, with a negative impact on Gross Domestic Product (GDP) growth.
Standard Bank Mozambique forecasts a slowdown in economic growth to 3.6% this year, compared to 5.4% last year, due to the decrease in the favourable base effect resulting from the production of Liquefied Natural Gas on the Coral Sul platform.
In addition, the financial institution points to an economic climate marked by intermittent shortages of foreign currency, restrictive financing conditions and persistent fiscal pressures.
These factors, combined with the current political tension, lead experts to believe that the Bank of Mozambique may temporarily interrupt interest rate cuts, waiting for the economic and political scenario to stabilise before making new monetary policy decisions.
