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IMF Suggests BoM Cut Rates Again to Stimulate Economy

IMF Suggests BoM Cut Rates Again to Stimulate Economy

The International Monetary Fund (IMF) has recommended that the Bank of Mozambique (BoM) consider a further reduction in the country’s key interest rate, after three cuts so far this year. According to the IMF, such a measure is crucial to stimulate the economy, as reported by Lusa.

According to the most recent IMF report, the fourth evaluation of the Extended Credit Facility (ECF) programme, Mozambique’s monetary policy has entered a cycle of easing. The IMF emphasises that a continuation of this easing is essential to mitigate the negative effects of a restrictive policy on economic growth and financial stability.

The report highlights that the country currently has real interest rates of around 12 per cent and well-anchored inflation expectations. However, economic growth is below potential, credit is declining and fiscal consolidation continues. The IMF therefore considers that the BoM has ‘ample room’ to proceed with a further reduction in the key interest rate.

In addition, the international organisation suggests that reducing reserve requirement ratios could help alleviate the financing shortage, providing an additional boost to the economy.

Since the beginning of the year, the Monetary Policy Committee (CPMO) of the Bank of Mozambique has already made three cuts to the Monetary Policy Interest Rate (MIMO Rate). In January, the rate was cut from 17.25 per cent to 16.50 per cent, followed by a further reduction in March and, most recently, in May, to 15 per cent. These decisions were justified by the prospect of inflation remaining in the single digits in the medium term.

The governor of the Bank of Mozambique, Rogério Zandamela, confirmed that the decision to reduce the MIMO Rate reflects the consolidation of the inflation outlook, which should remain in single digits in the near future, supported by the stability of the metical and the measures implemented.

Also according to the information, the BoM announced that it will continue with the process of normalising the MIMO Rate, but the pace and magnitude of future adjustments will depend on the inflation outlook and the assessment of the risks and uncertainties associated with the medium-term projections.

The next Monetary Policy Committee meeting is scheduled for 31 July.

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