Mozambique's central bank raised its benchmark standing facility rate by 25 basis points to 7.75 percent, citing inflation projections for 2016 that point to a higher level than the average seen over the last three years.
It is the first change in rates this year by the Bank of Mozambique, which also raised its rate on the standing deposit facility by 50 basis points to 2.0 percent and the reserve ratio by 100 basis points to 9.0 percent for the maintenance period that starts Nov. 7.
The central bank, which in September decided to increase the sale of foreign exchange to help ease the pressure on the metical currency, added that it would intervene in money markets to ensure that the monetary base does not exceed 62.925 billion meticais in October compared with September's 61.547 billion, a 17.3 percent jump from September last year.
Mozambique's metical has been depreciating since October 2014 but its decline steepened in August this year, prompting the central bank's decision to increase its sales of foreign exchange. Since late September the metical has firmed slightly but was still trading at 42.7 to the U.S. dollar today, down 22.6 percent this year.
In the interbank foreign exchange market, the central bank said the metical was quoted at 40.04 to the dollar on the last day of September for an annual drop of 30 percent.
Mozambique's Net International Reserves fell by US$246.4 million in September to $2.3079 billion due to net sales of $139.3 million, payment of external debt of $125.5 million, exchange losses of $20.5 million and payments abroad by $9.5 million. The reserves amount to 3.42 months of import cover.
Mozambique's inflation rate rose to 2.73 percent in September from 2.28 percent in August while the country's Gross Domestic Product expanded by an annual 5.9 percent in the second quarter, with the central bank pointing to improving business confidence based on the prospects for employment in all sectors apart from the trade and construction sectors.