NKC African Economics today considered that Mozambique had raised interest rates for the first time since 2017, and was the first country this year, to contain inflation and sustain the depreciation of the metical.
“Mozambique was the first country in the world to raise interest rates this year, and it was also the first time that Mimo was raised since it was introduced, in 2017,” analysts said in a comment to the rise in the reference rate by 300 basis points, from 10.25 percent to 13.25 percent last week.
In the document sent to investors, and to which Lusa had access, analysts argued that “real interest rates have remained very high, which would normally encourage monetary authorities to lower interest rates when the economy is weak, but the bank is concerned about the risk of rising inflation and the depreciation of the metical.
For NKC, “the risks of rising inflation are unlikely to diminish before the end of the year, so the central bank is not expected to cut rates in the foreseeable future”, which assumes that the MIMO rate will be kept at 13.25% for at least 2021.
Last year, the MIMO depreciated by 17%, hitting a new record low in mid-January, when it traded at 75 meticais per dollar.
On Wednesday, the Monetary Policy Committee (CPMO) of the Bank of Mozambique decided to raise the monetary policy interest rate, MIMO, by 300 basis points, to 13.25 percent, arguing with a “substantial upward revision of the inflation outlook for the medium term,” reflecting “the continued depreciation of the metical, in an environment of greater risks and uncertainties.
Among the uncertainties pointed out by the central bank are “the negative consequences of the accelerated spread of covid-19 and the occurrence of natural calamities, in addition to military instability” in the centre and north of the country.
The WB also warns: “a lower recovery of economic activity is expected in 2021”, while “pressure on public finances tends to increase and the foreign exchange market is under pressure in the demand for foreign currency”.
Annual inflation increased for the fourth consecutive month, “from 2.98% in September to 3.52% in December 2020,” with “underlying inflation, which excludes the prices of managed goods and services and of fruit and vegetables, rising over the same period from 2.92% to 5.10%, with prospects of worsening in coming quarters.
The Bank of Mozambique also anticipates “the end of part of the government’s price containment measures under covid-19 and climate shocks.
The next ordinary meeting of the CPMO is scheduled for 17 March.
