Banco de Moçambique, Mozambique’s central bank, on Wednesday kept its benchmark interest rate unchanged at 17.25 per cent for the eighth month running, since September 2022.
According to its Monetary Policy Committee (CPMO), the central bank also increased the minimum reserves that banks have to retain from 28% to 39% of metical deposits, and from 28.5% to 39.5% for foreign currency deposits.
Banco de Moçambique also issued a comunique informing companies that import fuel into the country that with effect from 5 June it will stop subsiding fuel imports.
The central bank’s CPMO deliberates on the monetary policy every two months.
Comment
Observers say that by increasing the minimum reserves that commercial banks can retain, the central wishes to stave inflation by reducing the amount of money circulating in the economy.
It is not clear whether the strategy will pan out. Ultimately, the interest rates offered by commercial banks might go up, making life difficult for borrowers to repay loans.
As for the decision to stop sharing the bill for fuel imports, observers say that fuel prices are likely to increase, meaning that prices of foodstuff will also increase.
Without the subsidy, fuel importers are likely to buy hard currency from foreign exchange houses and banks, which could have an impact on the exchange rate. Regional currencies, specifically the South African rand, have weakened as the US dollar strengthened. It could be that Banco de Moçambique foresees the strengthening of the dollar as compared to the metical, and is taking measures to keep the exchange rate steady.
Does that mean that the central bank international reserves are dwindling? It is not clear without the data to assess how much Banco de Moçambique holds in reserve.
Either way, for an economy that relies heavily on imports, it is likely that Mozambicans are in for a rough ride.
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