Thursday, December 13, 2018

Mozambique cuts rate 9th time as inflation decelerates

      Mozambique's central bank lowered its monetary policy rate for the ninth time as inflation continues to decelerate, the economy slowly recovers and the exchange rate slowly depreciates.
     The Bank of Mozambique cut its monetary policy rate (MIMO) by another 75 basis points to 14.25 percent and has now cut it by 900 basis points since April 2017, including 525 points this year.
      In addition to cutting MIMO, the central bank said its CPMO, the bank's body responsible for monetary policy, also lowered the deposit rate and the marginal lending facility rate by 75 basis points to 11.25 percent and 17.25 percent, respectively.
      However, the reserve requirements for banks' foreign and domestic currency liabilities were maintained at 27.0 percent and 14.0 percent, respectively.
      CPMO said the decision to resume the downward trend in the key rate was based on the outlook for short and medium-term inflation to remain in single digits.
      Mozambique's headline inflation rate eased to 4.27 percent in November from 4.75 percent in October, despite higher administered prices, while the metical was steady in response to the rate cut, trading at 61.6 to the U.S. dollar, down 4.4 percent this year.
      Mozambique's economy, which was dealt several severe blows in recent years, is continuing to slowly recover, supported by the government's commitment to tight monetary and fiscal policies, and reforms to improve the business environment, governance and transparency.
      In the third quarter of this year the country's gross domestic product grew by an annual 3.2 percent, down from 3.3 percent in the second quarter.
      On top of a decline in global commodity prices in 2014 and 2015, foreign donors, including the IMF, withdraw funding to Mozambique in 2016 when it was discovered the government hid almost $1.4 billion of debt, the equivalent of 10 percent of GDP.
       Following a visit last month by the IMF to initiate talks on cooperation next year, the IMF said the outlook for 2019 was for continued economic recovery and subdued inflation, with growth in a range of 4.0 to 4.7 percent, supported by monetary easing, clearing of domestic payment arrears to suppliers and higher foreign direct investment, particularly in liquified natural gas projects.
       Forecasting inflation of around 6 percent next year, the IMF said there was room for further monetary easing but that this should be done carefully given uncertainties in the global economy.


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