The Bank of Mozambique's report on the economic situation and inflation prospects, published on September 17, indicates that inflation projections for the medium term remain in single digits, thus foreseeing a relative recovery of the national economy, influenced by measures to counter the effects of covid-19.
According to the report of Banco de Moçambique quoted by "O País", these projections are supported by the lower depreciation of the Metical, in a context in which inflationary pressures are expected in the economies of major trading partners, as well as rising food and oil prices in the international market.
In August, prices registered a slight increase in the country, reflecting the increase in the class of food products and restaurants. Even so, the Bank of Mozambique expects inflation to remain in single digits in the short and medium term.
"Annual inflation, as measured by the change in the Consumer Price Index (CPI), rose from 5.48% in July to 5.61% in August. Likewise, the average annual inflation maintained its upward trend, standing at 4.61% in August, after 4.38% in July 2021," reads the Bank of Mozambique report.
These perspectives also reflect, fundamentally, the maintenance of the smaller depreciation of the Metical, which allows for the cushioning of the effect of the increase in food and oil prices in the international market, a fact that makes room for less exchange rate pressure in the medium term.
"The recent dynamics of the Metical's exchange rate against major tradable currencies, coupled with the prospect of recovery in external demand, resulting from the improved economic prospects of the country's main trading partners, as well as from the evolution of the prices of the main export commodities, portends less exchange rate pressure in the medium term," the document states.
Regarding economic activity, the projections of the Bank of Mozambique indicate a recovery of the domestic economy (in 2021 and 2022) driven, above all, by external demand, in view of the advances in vaccination programs, the adoption of stimulus packages in advanced economies, as well as the favorable evolution of export commodity prices.
"GDP accelerated in Q2 2021, reflecting the base effect and the easing of the measures imposed in the context of covid-19. Preliminary data from the National Statistics Institute (INE) indicate that, in annual terms, GDP grew by 1.97% in the period under review, an acceleration of 1.85 pp compared to the first quarter of 2021. Given this macroeconomic framework and considering the risks and uncertainties associated with inflation projections, the CPMO decided to maintain the MIMO rate at 13.25%," reveals the source.
The recovery of the national economy is supported by the prospects of an upturn in external demand, as a result of the gradual easing of the restrictive measures associated with covid-19 and the adoption of monetary and fiscal stimulus packages, as well as favorable developments in the prices of export commodities.
The assumptions that support the central bank's forecasts, at the international level, have to do, according to the Bank of Mozambique, with the relative reduction of GDP growth in the United States, South Africa, in 2021, followed by a faster recovery in 2022; the upward revision of the inflation outlook in South Africa and the U.S. for 2021 and 2022; the upward revision of the outlook for Brent crude oil prices in the international market over the projection horizon; and the downward revision of the outlook for food prices in the international market in 2021, and upward revision in 2022.