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Prime Rate Held Steady in February After Four Consecutive Monthly Cuts

Prime Rate Held Steady in February After Four Consecutive Monthly Cuts

The Mozambican Banking Association (AMB) announced that the reference interest rate for credit in Mozambique will remain unchanged in February, at 19.0%, after four consecutive monthly cuts.

The rate, known as the prime rate, had been falling since 2018, to a low of 15.5% in February 2021, when the trend reversed and the rate began to rise until it reached 24.1% in July 2023.

Meanwhile, the prime rate returned to 23.5% in January 2024, after six consecutive months of highs of 24.1%. It fell in March of the same year to 23.1%, in April to 22.7%, May (22.3%), June (22%), July (21.2%), a figure that was maintained in August and September, falling in October to 20.5%, November (19.8%), December (19.7%) and in January this year it fell back to 19.0%.

Fluctuations in the prime rate are linked to the monetary policy interest rate (MIMO rate, which influences the formula for calculating the prime rate) used by the central bank to control inflation.

This Monday, 27 January, the Monetary Policy Committee (CPMO) of the Bank of Mozambique (BoM) decided to cut the MIMO rate again, from 12.75%, in force since the end of November last year, to 12.25%.

‘This decision stems from the maintenance of a single-digit inflation outlook in the medium term, despite the increased risks and uncertainties associated with the projections, particularly those arising from post-election tension, fiscal risk and climate shocks,’ the financial organisation said in a statement.

The key interest rate had been set at 17.25 per cent since September 2022. After the central bank’s intervention, it began a series of consecutive cuts from 31 January 2024, when it was reduced to 16.5%. On 27 March, the BoM cut it to 15.75%, on 27 May to 15%, on 31 July to 14.25%, on 30 September to 13.5% and on 27 November to 12.75%.

In addition, the CPMO decided to reduce the compulsory reserve coefficients for liabilities in national currency from 39.0 per cent to 29.0 per cent and in foreign currency from 39.50 per cent to 29.50 per cent, in order to provide more liquidity to support the economy in restoring productive capacity and the supply of goods and services.

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