News Column

Once Again, Central Bank Keeps Interest Rates Unchanged

July 14, 2014

The Monetary Policy Committee of the Bank of Mozambique, meeting in Maputo on Friday, 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.

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 50.471 billion meticais (about 1.65 billion US dollars) by the end of July.

At the end of June, the monetary base had reached 49.756 billion meticais, which was 2.6 per cent higher than the target set by the central bank of 48/023 billion meticais. The rise over the month was 3.4 per cent, caused by an increase of 1.614 billion meticais in notes and coins in circulation, while bank reserves rose very slightly by 23 million meticais.

The rise in notes and coins in circulation was caused by a heavy demand for cash to meet the needs of various businesses to make urgent payments, particularly the purchase of crops in northern and central Mozambique during the agricultural marketing campaign.

The statement noted that, according to the consumer price index for the three major cities (Maputo, Beira and Nampula), the June inflation rate was minus 0.52 per cent. This was the second month in a row when prices fell rather than rose - the inflation rate in May was minus 0.38 per cent. The yearly inflation rate - July 2013 to June 2014 - was 1.49 per cent.

The monetary policy committee commented that the behavior of inflation in June, as in the previous month, "reflected the seasonal impact of the cool period of the years, which favours the domestic production of fresh produce and of crops from the second sowings, together with the stability of the metical on the exchange market, which cushioned the effect of general price rises in some countries that are trading partners of Mozambique".

On 30 June, the metical was quoted at 30.65 to the US dollar on the Inter-Bank Exchange Market. The rate was almost unchanged over the previous two months - on 30 April there had been 30.65 meticais to the dollar, falling to 30.63 to the dollar on 31 May. Since the start of the year, however, the metical has depreciated by 2.34 per cent against the dollar.

There were 2.95 meticais to the South African rand on 30 June - which, again, was almost exactly the same figure as on the last day of May (2.93 meticais).

Provisional figures for the end of June show a rise of 5.5 million US dollars in Mozambique's net international reserves. By the end of the month, the reserves stood at 3.15 billion dollars, enough to cover 4.4 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 key grains on the world market continued to fall in June - rice by 24.1 per cent, maize by 31.8 per cent, and wheat by two 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 continued to fall in June - the price of coking coal dropped by 22.1 per cent and of thermal coal by 7.5 per cent. There were falls in the average prices of two other significant Mozambican exports - natural gas by 7.1 per cent, and cotton by 2.3 per cent. On the other hand, the price of aluminium (still Mozambique's largest export) rose by 1.3 per cent, and the price of sugar by 6.9 per cent.

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Source: AllAfrica

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