The recent evolution of the Mozambican economy reveals a macroeconomic paradox that requires careful analysis: despite the consistent decline in inflation and the explicit adoption of an expansionary monetary policy by the central bank, economic activity remains stagnant. This situation reveals a scenario in which nominal stability, far from reflecting productive dynamism, instead appears as the visible symptom of weakened domestic demand, the weak transmission capacity of monetary policy, and deep structural limitations in the real economy.
The data show a divergence between the evolution of nominal indicators and the real performance of the economy. Although the quarterly average inflation rate fell from 3.74% to 3.22% in 2024, remaining moderate in 2025 with the annual average reaching 4.37%, and returning to levels of 3.04% in January 2026 (in line with reductions in the MIMO rate from 16.50% to 12.75% in 2024, from 12.25% to 9.50% in 2025, and more recently to 9.25% at the beginning of 2026, as well as reductions in the prime rate from 23.50% in 2024 to 15.70% in 2026), the Gross Domestic Product (GDP) did not respond accordingly.
After notable growth of +5.53% in the third quarter of 2024, the economy contracted by -5.73% in the following quarter and maintained negative values throughout 2025 (-3.92%, -0.94%, and -0.85% in the first, second, and third quarters, respectively). This dynamic indicates that the fall in inflation does not reflect productive gains, but rather a reduction in aggregate demand associated with the contraction of consumption and investment.
The analysis of the reasons underlying this apparent ineffectiveness of monetary policy echoes the arguments developed by economist Carlos Nuno Castel-Branco in the publication IDeIAS (166P): “Why have expansionary monetary policy interventions not been effective?”
“Monetary policy, on its own, cannot overcome structural constraints or alter incentives deeply rooted in the accumulation model.”
There are several technical reasons for this phenomenon: on the one hand, the financial system, highly concentrated and conservative, directs most resources toward government securities, limiting productive credit and preventing interest rate reductions from effectively financing businesses, especially SMEs, which form the core of the national economic fabric. On the other hand, the strong dependence on imports restricts the capacity of domestic supply to respond, causing increases in liquidity to translate into greater external demand rather than productive dynamism. What happened in the United States and Rwanda
International experience demonstrates that the effectiveness of monetary policy depends on its articulation with fiscal and structural measures. In the United States, after the 2008 crisis, the Federal Reserve (Fed) drastically reduced interest rates and resorted to unconventional instruments, such as expanding its balance sheet through asset purchase programs. However, the recovery only gained traction due to coordination with expansionary fiscal policies, recapitalization of the financial system, and direct support to household income. Similarly, the case of Rwanda in the early 2000s demonstrated that overcoming stagnation requires more than monetary stimulus: it involves combining macroeconomic prudence with productive diversification, strategic public investment, and improvements in the business environment.
In both contexts, nominal stabilization was accompanied by structural reforms, allowing monetary policy to act as support rather than as the sole engine of economic recovery.
In Mozambique, by contrast, nominal stabilization appears to occur in a context of real stagnation. If low inflation essentially results from compressed demand, then the country is facing a low-activity economic equilibrium. The persistence of deficits financed through domestic debt, banks’ preference for lower-risk financial assets, and the fragility of the productive base limit the effectiveness of expansionary measures.
Monetary policy alone cannot overcome structural constraints or alter incentives deeply rooted in the accumulation model. On the contrary, it may reflect the absence of dynamism in the real economy. As such, without effective coordination between fiscal and monetary policy, without structural reforms that diversify the productive base, and without a reorientation of the system toward financing productive investment, the economy may remain trapped in a scenario of nominal stability with real stagnation. Falling inflation may be good news; but when accompanied by negative growth, it is also a warning that the economy remains, essentially, inert.
