Thursday, August 20, 2020

Mozambique holds rate after 13 cuts, inflation seen rising

     Mozambique's central bank left its benchmark interest rate steady after 13 rate cuts in 3-1/2 years, citing a worsening of inflation prospects, a greater contraction of economic activity this year and a slower recovery in 2021.
    The Bank of Mozambique (BOM) kept its monetary policy rate (MIMO) at 10.25 percent after cutting it twice this year by a total of 250 basis points and after cutting it 13 times since April 2017 by a total of 11.50 percentage points.
     Mozambique's inflation rate rose slightly to 2.8 percent in July from 2.69 percent in June and BOM said it expects an acceleration in the short and medium term due to a depreciation of the metical and the recovery of oil prices despite weak domestic demand.
     Nevertheless, economic agents surveyed in August still only expect inflation in single digits, it added.
     After being relatively stable between June 2017 and the start of this year, the metical has depreciated steadily every month this year and was trading around 71 to the U.S. dollar today, down 13.3 percent since the start of this year.
      Mozambique's economy shrank by an annual 3.25 percent in the second quarter of this year after growth of 1.68 percent in the first quarter and BOM said it now expects a greater contraction this year than earlier expected and a more timid recovery next year.
     "In the short and medium term, the risks and uncertainties in the domestic economy have increased," BOM said, referring to the spread of the COVID-19 virus and an intensification of the military instability in the north of the country.
     Despite the August 2019 peace agreement between Mozambique's government and the leader of its main opposition group, which ended sporadic violence that dragged on since a civil war ended in 1992, there is continued fighting close to Mozambique's northern border with Tanzania.
     Last week the northern port town of Mocimboa da Praia, in the province of Cabo Delgado, was again attacked by members of an Islamic state affiliated group. The town is near offshore gas projects operated by Exxon and Total worth some $60 billion.



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