Mozambique cuts rate 12th time as inflation outlook falls
The Bank of Mozambique's (BOM) cut its monetary policy rate, or MIMO, by 150 basis points to 11.25 percent and has now cut it by 12 percentage points since it began easing its policy stance in April 2017 after inflation began a steady decline from a peak of over 26 percent in November 2016.
The last rate cut prior to today's was in August 2019 and the rate cut four years ago was carried out as BOM adopted MIMO as its new policy rate.
At a meeting on April 16, BOM's monetary policy committee also lowered the rate on its deposit and lending facilities by 150 basis points to 8.25 percent and 14.25 percent, respectively. The Compulsory Reserve Ratio on liabilities in national and foreign currency was unchanged at 11.50 percent and 34.50 percent, respectively.
Mozambique's economy has been battered for decades by a series of major events, including a 15-year civil war, the withdrawal of funding by foreign donors in 2016 after it was discovered the government had hidden almost $1.4 billion of debt, and intense tropical cyclones that have killed thousands and destroyed crops, most recently cyclones Idai and Kenneth 12 months ago.
In August last year Mozambique's president and the leader of the main opposition group finally signed a peace agreement that paved the way for peaceful elections in October, ending violence that has persisted since a full-scale civil war ended in 1992 that cost the lives of an estimated 1 million.
In March Mozambique's inflation rate eased further to 3.09 percent from 3.55 percent in February and 3.48 percent in January while the exchange rate of the metical has depreciated this year after remaining relatively stable since May 2017.
Today the metical was trading at 67.1 to the U.S. dollar, down 7.3 percent this year after only falling 0.9 percent in 2019.
But Mozambique's inflation prospects are continuing to improve, BOM said, adding international reserves were at a comfortable level of around US$3.9 billion, enough to cover more than 6 months of imports, and steady from $3.9 billion in February.
Last week's decision by the International Monetary Fund (IMF) to provide immediate debt relief for six months to 25 of its poorest and most vulnerable members will allow Mozambique to use some US$15 million to help combat the effects of the coronavirus
However, BOM's policy committee added the pressure on public spending along with lower revenue has already risen, with internal public debt rising to 166.76 billion meticais from the issuance of treasury bonds from 155.25 billion since February.
Last month the Confederation of Mozambican Business Associations (CTA) called for a sharp reduction in interest rates due to the impact of COVID-19, especially on tourism, transport and agriculture.
CTA, which said MIMO should be cut to 6.55 percent, as the income of these three sectors has already fallen 95 percent, 70 percent and 47 percent, respectively, for a combined loss of US$355 million.
Prior to the hit to Mozambique's economy from the spread of the virus, BOM had expected economic growth to pick up this year due to reconstruction after last year's cyclones.
In the fourth quarter of 2019, Mozambique's gross domestic product expanded by an unchanged 2.0 percent year-on-year.
But BOM said the outlook for economic growth this year has deteriorated at a time when the economy was still weak from the effects of the cyclones and military instability.
However, the central bank had room to continue to support policies to mitigate the effects of the virus as the inflationary outlook continues to improve.
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