The Bank of Mozambique (BM) said this Wednesday, 5 October, that the country urgently needs low and stable inflation as a way of creating a macroeconomic environment favourable to investment and economic growth over time.
In August, Mozambican inflation accelerated to 12.1 percent, after having reached a high of 11.77 percent in July.
Speaking during a talk aimed at economics students at the Eduardo Mondlane University (UEM), the director of the WB’s Economic Studies Department, Pinho Ribeiro, said that stable inflation encourages investment and favours sustainable economic growth over time, particularly in developing countries such as Mozambique.
According to the director, the outlook remains for acceleration of inflation in the short term, as well as a tendency to slow down in the long term, explaining that the evolution of prices on foreign markets are the main element that determines this trajectory.
“The upward trend in prices in international markets and the conflict between Russia and Ukraine are dictating the downward revision of the prospects for world growth. Therefore, for the world economy, it is clear that, in 2023, a reduction of 0.7 percentage points is forecast, and the economies that will most counter [this scenario] in relative terms are the advanced ones,” explained Pinho Ribeiro.
“The country urgently needs low and stable inflation as a way of creating a macroeconomic environment favourable to investment and economic growth over time.”
According to the director, the upward revision of inflation in the short and long term in the country depends, above all, on the revision of fuel prices and semi-collective passenger transport.
“The behaviour of the exchange rate also determines the dynamics of inflation and that has been stable and is dampening and containing the impacts of the rise in prices of imported goods,” the source added.
The Bank of Mozambique also advocates raising the monetary policy interest rate to prevent a high rise in inflation and thus protect the national economy.
Recently, the Monetary Policy Committee (CPMO) of the Bank of Mozambique decided to increase that rate by two percentage points, from 15.25 percent to 17.25 percent.
On the decision, the director said that the measure aimed to protect the country from the continued volatility of fuel and food prices caused by the war in Ukraine and to prevent a sharp rise in prices on the domestic market.
Through the increase in reference rates, Pinho Ribeiro said the central bank aims to curb greater circulation of money and control the trend of rising prices.
“As usual, the Monetary Policy Committee always monitors, and will continue to monitor, the evolution of risks and uncertainties associated to these projections and will not hesitate to take the necessary corrective measures,” he emphasised.
Pinho Ribeiro said that the regulator was focused on the aim of getting inflation to drop below two digits, counting on the prospect of a reduction in fuel and food prices, in the medium term, on the international market.
Without specifying the figure, the source said that there were strong prospects for growth in the country’s gross domestic product (GDP), associated to the following factors: post-Covid 19 economic re-launch, implementation of the reform programme with the International Monetary Fund (IMF) and execution of energy projects in Temane and Rovuma in the provinces of Inhambane and Cabo Delgado, respectively.
However, the source from the Bank of Mozambique warned of the existence of risk factors that could derail the economy, with more focus on the slowdown in external demand, uncertainty about the adjustment of prices of goods domestically, while, externally, uncertainties are great due to the magnitude of the effects of the conflict between Russia and Ukraine.
“The metical, compared to other currencies, is an appetising currency, because it is more profitable to hold meticais than to hold other currencies. This is therefore the main reason for the appreciation of the national currency”
Speaking at the same lecture, Carlos Baptista, director of the Markets and Reserve Management Department of the Bank of Mozambique, noted that the institution’s measures have allowed the Mozambican currency to remain “solid and appetising” against some foreign currencies, rejecting the idea that the metical is “artificially valued”.
“The metical, compared with other currencies, is an attractive currency, because it is more profitable to hold meticais than to hold other currencies. This is, therefore, the main reason for the appreciation of the national currency,” Baptista emphasised.
The lecture promoted by the Bank of Mozambique (BM) had as its theme “The Economic Conjuncture and Inflation Perspectives” and counted with the participation of senior officials from the BM, as well as students and teachers from the Faculty of Economics of UEM.
