Policy rate reduced to 13.50%

 

The Banco de Moçambique Monetary Policy Committee (MPC) decided to reduce the policy rate, MIMO, from 14.25% to 13.50%. This decision is underpinned by the continued consolidation of single-digit inflation prospects over the medium term, in a context where the assessment of risks and uncertainties associated with projections remain favorable.

 

 

This MPC session was preceded by a meeting of the Banco de Moçambique Financial Stability and  inclusion Committee, which assessed the developments of the financial inclusion indicators, also reflected herein, and concluded that financial inclusion levels have increased significantly.

 

 

Prospects of single-digit inflation remain unchanged over the medium term. In August 2024, annual inflation continued its downward trend, standing at 2.8%, following 3.0% in July. The same trend was observed with core inflation, which excludes fruits and vegetables and administered prices. Prospects for single-digit in inflation over the medium term remain in place, mainly reflecting the stability of the Metical and the impact of the measures taken by the MPC.

 

 

Moderate economic growth is expected in the medium term. In the second quarter of 2024, excluding liquefi ed natural gas (LNG), gross domestic product (GDP) growth is estimated at 3.6%, following 2.3% in the previous quarter, and is anticipated to remain modest until the end of 2024. Including LNG, GDP grew by 4.5% from 3.2%. In the medium term, moderate economic activity growth is expected, despite the prevalence of uncertainties regarding the impacts of climate shocks on agricultural production and various infrastructures.

 

 

Financial inclusion levels have increased remarkably spurred by technological innovation and modernization of payment infrastructures. From December 2022 to June 2024, the percentage of the adult population with access to digital financial services rose from 68.5% to 94.5%. This growth was driven by the onset of the SIM Orede-based interoperability between mobile money networks (mkesh, m-pesa and e-mola), banks, microbanks and other service providers.

 

 

International reserves remain at comfortable levels. Gross international reserves continue to grow and can currently cover more than 5 months of imports of goods and services.

 

 

Money market interest rates continue to decline. The reference interest rate for credit, the Prime Rate, continues to ease, in line with monetary policy decisions. The same behavior is observed in the interest rates that banks provide their customers, with a modest increase in credit to the economy. Pressure on domestic public debt remains high. Domestic public debt, excluding loan and lease agreements and overdue liabilities, stands at 402.7 billion meticais, a 90.3 billion meticais increase compared to December 2023.

 

 

 

The assessment of the risks and uncertainties associated with inflation projections remains favorable. Factors likely to restrain inflation over the medium term include the stability of the Metical and global market commodity prices.

 

 

The MPC will continue easing the MIMO policy rate over the medium term. The pace and magnitude will continue to depend on inflation prospects, as well as the assessment of the risks and uncertainties associated with medium-term projections.

 

 

 

 

The next MPC meeting is scheduled for November 27, 2024.

 

 

 

 

                                                  Roger Lucas Zandamela