The metical, the Mozambican currency, has appreciated 35% to 55 meticais per dollar since January, but should probably reverse some of these gains, according to the economic research office of South African bank Standard Bank.
“The metical, trading at 55.5 per dollar, has gained 35% since the start of the year, or 22.2% year-on-year in 2020, but is, however, likely to reverse some of these gains as exporters have started to suspend some foreign currency conversions and importers have returned to the market benefiting from recent gains,” the bank said.
In a note sent to investors commenting on the appreciation of the metical, and to which Lusa had access, analysts in Mozambique from the South African bank wrote that foreign currency liquidity and the dynamics of supply and demand, as well as negative sentiment and economic fundamentals imply that this rate is unsustainable due to the large and historic current account deficit and the weak outlook for foreign direct investment, at least this year, after the terrorist attacks in Palma.
The metical has been one of the best performing currencies worldwide since the beginning of the year, reversing the downward trend it had been recording last year and forcing analysts to redo their forecasts for the evolution of the Mozambican currency.
“Numerous factors contributed to this stellar, albeit counter-intuitive, performance in recent weeks,” the analysts said, listing, among others, the increase in the key interest rate by 300 basis points in January, which slowed demand for imports.
In addition, they pointed out, there was also the expectation that the Bank of Mozambique would support the market by selling foreign currency to stabilise the metical, a clear change from the 2020 monetary outlook when it let the metical rise against the dollar almost in a vertical line during the year, which served as a cushion for the balance of payments pressures and helped protect foreign reserves.
Other factors pointed out by Standard Bank also include delayed payments by importers, which benefited from the metical’s rise, and foreign direct investment into the extractive industry.
Over the last week, the metical has stabilised at 61 per dollar, which the bank attributes to the reluctance of exporters to sell below 60 dollars and the new policy of importers, but the magnitude of the currency correction remains uncertain, analysts at the South African bank said.
The metical was relatively stable during January at 75 per dollar and started appreciating at the end of February until it reached 61 meticais on Friday. It is necessary to go back to January 2020, before the Covid-19 pandemic, to find the Mozambican currency so high.
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.
