Monday, February 11, 2019

Mozambique holds rate after 9 cuts in prudent policy

      Mozambique's central bank left its monetary policy rate steady at 14.25 percent after nine rate cuts in almost two years, saying it expects inflation to remain in single digits this year but considers it opportune to maintain a prudent monetary policy stance given more prominent risks and uncertainties underlying the projections for inflation.
     The Bank of Mozambique (BM) last cut its rate in December 2018 by 75 basis points and has cut it by a total of 900 basis points since April 2017, including 525 points last year.
     Mozambique's inflation rate rose slightly to 3.78 percent in January from 3.52 percent in December last year, down from 5.65 percent in December 2017.
      BM said the prospects for single-digit inflation this year were based on expectations of lower international fuel prices and price stability in Mozambique's main trading partners in the context of contained aggregate demand.
      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 an upwardly revised 3.4 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 in November 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.
      Mozambique's metical was trading at 62.3 to the U.S. dollar today, down 1.1 percent this year and down 5.5 percent since the start of 2018.


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