The Monetary Policy Committee of the Bank of Mozambique (CPMO) recently announced a 75 basis point reduction in its benchmark interest rate, the MIMO rate, bringing it down from 15% to 14.25%.
This marks the fourth rate cut this year, starting from 17.25% in January. The CPMO’s decision aims to sustain single-digit inflation in the medium term, amidst favorable risk assessments and projections.
Governor Rogerio Zandamela highlighted that Mozambique’s inflation remains low and stable. The annual inflation rate dropped to 3% in June from 3.1% in May.
Underlying inflation, excluding volatile items like fruit and vegetables, also remains low.
The stability of the Mozambican currency, the metical, and previous CPMO measures have contributed to this positive outlook. The bank forecasts moderate economic growth in the medium term.
Preliminary data from the National Statistics Institute (INE) show that Mozambique’s GDP, excluding liquefied natural gas (LNG), grew by 2.3% in the first quarter of this year.
Including LNG, the growth rate rises to 3.2%. However, the CPMO warns of continued pressure on domestic public debt, which now stands at 377.9 billion meticais (about $5.9 billion).
This represents an increase of 65.6 billion meticais since December 2023. The CPMO plans to continue reducing the MIMO rate, but future adjustments will depend on inflation prospects.
Mozambique’s Economic Landscape
The committee’s cautious approach reflects the need to balance economic stimulation with inflation control.
Fitch Solutions projects that Mozambique’s policy rate will drop to 13.00% by the end of 2024, indicating ongoing monetary easing.
Former Finance Minister Manuel Chang, currently on trial in New York for conspiracy to commit money laundering and fraud, has returned $7 million in bribes from the Abu Dhabi-based Privinvest Group.
This money is now in the custody of the Bank of Mozambique, awaiting the outcome of ongoing lawsuits in the London High Court.
In a related development, Judge Robin Knowles ruled that Privinvest should pay Mozambique around $2.3 billion in compensation.
However, Privinvest plans to appeal, raising doubts about its ability to pay. Mozambique’s recent interest rate cuts reflect a strategic effort to maintain low inflation and stimulate economic growth.
The country’s economic stability hinges on the careful management of monetary policy, public debt, and legal challenges.
As Mozambique navigates these complexities, the CPMO’s actions will play a crucial role in shaping the nation’s economic future.
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