Mozambique's central bank left the benchmark rate on its Standing Lending Facility unchanged at 10.75 percent, noting a slight recovery of some commodity prices but also adverse weather, which, in combination with political and military tensions, could affect inflation and economic growth this year.
The Bank of Mozambique, which raised its rate by 100 basis points in February following rate hikes totaling 225 points last year, added that higher risks from the global economy require "close monitoring" and underlined the importance of coordination of fiscal, monetary and sectoral policies.
The central bank will target a monetary base of 66.443 billion meticais in March following a contraction of the base in February by 1.280 billion meticais to 69.899 billion. On an annual basis, the monetary base was up by 15.323 billion, or by 28.1 percent, up from a 25.6 percent annual increase in January.
The rate hike in February was in response to upward pressure on inflation from reduced supply of agricultural products due to drought in southern Mozambique and the impact of depreciation.
Mozambique's inflation rate rose further to 12.18 percent in February from 11.25 percent in January with the central bank saying that prices mainly reflected the impact of drought, depreciation of the metical and higher prices in South Africa.
Business confidence in Mozambique showed a "mild improvement" in January, the central bank said, due to a favorable assessment of employment and prices except for the hotel and restaurant sector that was pessimistic about prospects.
Mozambique's metical fell last year, reflecting shocks to the economy, the rise in the U.S. dollar, the fall in prices of goods exported from Mozambique, and reduced foreign direct investment and foreign aid.
On the final day of February, the central bank said the metical was quoted at 47.28 to the dollar on the interbank foreign exchange market for a monthly depreciation of 2.65 percent and an annual fall of 46.06 percent.
Today the metical was trading at 50.5 to the dollar, down 5.2 percent since the start of this year.
Mozambique's net international reserves declined by US$31.8 in February to $1.8307 billion.