News Column

Central Bank Keeps Interest Rates Unchanged, Again

May 13, 2014

The Monetary Policy Committee of the Bank of Mozambique, meeting in Maputo on Monday, decided to keep the bank's key interest rates unchanged for at least another month.

The statement issued by the Committee said that the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) will remain at 8.25 per cent.

The Standing Deposit Facility (the rate paid by the central bank to the commercial banks on money they deposit with it) remains at 1.5 per cent, and the Compulsory Reserves Coefficient - the amount of money that the commercial banks must deposit with the Bank of Mozambique - is also unchanged at eight per cent.

This means that the Central Bank's interest rates have remained unaltered since October 2013, when the Standing Lending Facility was cut by 50 base points, from 8.75 to 8.25 per cent.

The Committee also decided that the central bank will intervene in the inter-bank markets in order to ensure that the monetary base does not exceed 47.533 billion meticais (about 1.55 billion US dollars) by the end of May.

At the end of April, the monetary base had reached 46.796 billion meticais, somewhat higher than the target set by the central bank of 46.451 billion meticais. The rise over the month was 3.4 per cent, caused by an increase of 888 million meticais in notes and coins in circulation, and of 643 million in bank reserves.

The statement noted that, according to the consumer price index for the three major cities (Maputo, Beira and Nampula), the April inflation rate was 0.12 per cent. This was considerably lower than the March inflation rate of 0.91 per cent. The yearly inflation rate - May 2013 to April 2014 - was 2.87 per cent.

The monetary policy committee commented that the behavior of inflation in the first four months of the year "continues to reflect the impact of the floods that struck the country at the start of the year, affecting the production and circulation of agricultural produce, particularly fruit and vegetables, as well as of charcoal and firewood, together with a general increase in prices in the South African economy".

The slowdown in the inflation rate in April, the statement adds, "reflects the seasonal effect of the beginning of the cool season, favourable to the domestic production of fresh produce, and the greater stability of the metical against the US dollar and the South African rand, after some pressure on the exchange market at the beginning of the year".

On 30 April, the metical was quoted at 30.65 to the dollar on the Inter-Bank Exchange Market. This was a depreciation of 0.72 per cent over the month. Over the previous year the metical declined by 2.1 per cent against the dollar.

There were 2.92 meticais to the rand - a depreciation of 1.39 per cent compared to the figure at the end of March. However, taking the past year as a whole, the metical had appreciated by 12.57 per cent against the rand.

Provisional figures for the end of April show a slight increase (by 1.1 million dollars) in Mozambique's net international reserves. By the end of the month, the reserves stood at 3.185 billion dollars, enough to cover four and a half months of imports of goods and nonfactor services (excluding the imports made by the foreign investment mega-projects).

The statement noted that the average prices of grain on the world market had fallen in April. The price of rice had fallen by 25.9 per cent, of wheat by 12.6 per cent and of maize by 20.7 per cent. Mozambique is self-sufficient in maize, but still imports large amounts of wheat and rice.

The price of a key Mozambican export, coal, also fell - the price of coking coal dropped by 22.3 per cent and of thermal coal by 14.9 per cent.

The price of one of the country's key agricultural exports, cotton, rose by 1.8 per cent.

Despite the central bank's eight month freeze in interest rates, the commercial banks, far from following suit, have actually raised their interest rates. The latest figures, from March, show that the average interest rates charged by the commercial banks rose slightly, to 20.69 per cent for loans maturing in a year. The prime rate charged to favoured clients remained unchanged at 14.94 per cent.

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Source: AllAfrica

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