Mozambique's central bank raised its benchmark standing facility rate by a further 50 basis points to 8.25 percent, citing the need for "redoubled caution" in light of the prospects for short and medium-term inflation at a time of growing foreign and domestic risks.
The Bank of Mozambique (BM), which has now raised its rate by 75 basis points this year following an initial hike in October, added that it was also increasing the reserve requirement by a further 150 basis points to 10.50 percent with effect for the maintenance period that begins Dec. 7.
The interest rate on the bank's deposit facility will also be raised by 75 basis points to 2.75 percent while the central bank will target a monetary base of 66.437 billion meticais in November from 61.312 billion, line with the bank's estimate, and up by an annual 15.1 percent.
BM said the INE economic climate business indicator declined in September, reflecting a less positive view about job prospects, demand and prices. Apart from the industrial production and construction sectors, all sectors were pessimistic.
Mozambique's inflation rate jumped to 4.74 percent in October from 2.73 percent in September, with the rise in prices reflecting the depreciation of the metical's exchange rate and the impact of a change to the administered prices of some goods and services, including bread, water, electric power, tomatoes, soft drinks, rise and motor vehicles.
The metical has been depreciating since October 2014 but its decline steepened in August, prompting the central bank to increase sales of foreign exchange.
On the last day of October, the metical's exchange rate was 42.01 at on the interbank foreign exchange market, the bank said, for an annual decline of 35.95 percent. Today the metical was quoted at 45.5 to the dollar for a decline since the start of this year of 27.5 percent.
Mozambique's Net International Reserves fell by US$92.7 in October to $2.0268 billion, or 3.71 months of imports.
The decline reflects foreign currency net sales by the central bank of $104 million of which $57.9 million were for fuel bills, payments abroad of $16.4 million and external debt repayments of $12.4 million. But the central bank also purchased foreign exchange of $13.8 million, disbursed foreign aid worth $22.1 million, had potential net foreign exchange gains of $12.0 million and gains from changes in its gold holdings worth $7.5 million.