Consultancy NKC African Economics said Wednesday that the appreciation of the metical in recent weeks is not a reflection of an improvement in economic growth, attributing the rise to probable central bank intervention.
“There are several possible explanations for the sudden appreciation of the metical, but the most likely, only confirmable when the figures on international reserves for March come out, is an intervention by the Bank of Mozambique in the foreign currency market,” wrote the analysts from the African branch of British company Oxford Economics.
In a commentary on the appreciation of the metical, sent to clients and to which Lusa had access, the analysts said that “the depreciation of the metical last year may have led the Bank of Mozambique to intervene to favour the activity of exporters that were affected by the pandemic.
However, they also point to the rise in inflation of 5 percent since the start of this year, the rise in the prices of the main raw materials that Mozambique exports (aluminium, coal and natural gas), the rise in interest rates in January, the reduction in imports due to the stoppage of work on gas projects in Cabo Delgado, in the north of the country, and the increased supply of dollars from the country’s debt relief to China as possible reasons.
The metical rose from February until this morning by 18.6 percent against the dollar, reversing the depreciating trend it recorded at the beginning of the year, making the national currency the most appreciated in the first months of the year worldwide.
“In addition to the impressive degree of appreciation, the metical’s performance was even more impressive as it comes in a context of global strengthening of the dollar and increased international attention to the crisis in Cabo Delgado,” the scene of armed violence, analysts point out.
The metical was relatively stable during January at 75 meticais to the dollar and started appreciating at the end of February, appreciating to 61.8 meticais today.
However, they add, the currency’s appreciation is not synonymous with an improvement in economic conditions in the country, which is still struggling with a timid recovery from last year’s recession, war in the north of the country and tropical storms.
“The first quarter was challenging for the economy, the Moatize mine, the largest in the country, had a planned technical halt in the first few months before production picked up later in the year, while the ruby mine in Montepuez suspended activities in April last year due to the pandemic and only resumed operations in early March,” the analysts write, also pointing to the reappearance of more cases of covid-19 and the string of tropical storms that affected the port of Beira, the biggest outlet for exports.
In the note, NKC African Economics said it would review the metical’s exchange rate forecast against the dollar in upcoming estimates, but warned that, “although the currency still has room to appreciate further, it will lose some of the gains towards the end of the year due to reduced monetary intervention motivated by the slowdown in inflation, continued strength of the dollar and increased import requirements.
According to a survey of the relationship between the metical and the dollar carried out by Lusa news agency, the Mozambican currency has risen 18.6 percent since the start of the year, when 75 meticals were needed to buy one dollar, as compared to 61 meticals yesterday.
The metical was relatively stable during January at 75 meticais to the dollar and started appreciating at the end of February, having appreciated until it reached 61.8 meticais today, making it necessary to go back to January 2020, before the covid-19 pandemic, to find the Mozambican currency so appreciated.
The appreciation of the metical follows a drop of about 10% over the past year in value against the dollar, and comes against the forecasts of most analysts, who predicted an even greater drop in the metical this year, and takes place 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.
