Central Bank holds interest rates steady

A statement from the CPMO said that the monetary policy interest rate (MIMO) used by the central bank for its interventions on the interbank money market to regulate liquidity, will remain 17.25 per cent.

The decision not to raise or lower interest rates, the CPMO said, “is sustained by the high risks and uncertainties associated with the projection of inflation”. Those risks included “the effects of the persistence of geopolitical tension in Europe, and the slowdown in foreign demand, despite the prospect of a return to single digit inflation in the medium term”.

The inflation rate is slowing down. Annual inflation, as measured by the consumer price indices in the three main cities (Maputo, Nampula and Beira), fell from 12.01 per cent in September to 11.08 per cent in October. This, the CPMO said, reflected a fall in food prices, particularly of fruit and vegetables.

The Bank was optimistic that, in the medium term, the annual inflation rate will fall to below ten per cent, due in part to the stability of the national currency, the metical.

Nonetheless, the CPMO warned of a high level of risk, thanks to growing pressures for an increase in public expenditure, and uncertainties about climatic shocks and the effect these will have on marketing and prices. Furthermore, nobody knows how long the Russian invasion of Ukraine will last, and the risk remains of a worldwide economic recession.

The central bank has revised downwards its forecast for economic growth in 2023. In the third quarter of 2022, the annual growth rate slowed to 3.6 per cent, which the CPMO statement blamed on “the poor performance of the secondary sector”.

In the medium term, a slowdown in the expansion of economic activity is expected “faced with the potential reduction in foreign demand, and restrictive financial conditions, including added difficulties in access to international financial markets”.