The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided Wednesday to maintain the monetary policy interest rate (MIMO rate) at 13.25%, the Mozambican financial regulator announced in a statement.

"The decision is based on the worsening risks and uncertainties, notwithstanding the downward revision of inflation prospects in the short and medium term, reflecting, above all, the recent appreciation of the metical," the press release said.

The CPMO also decided to maintain the interest rates on the Permanent Deposit Facility (FPD) at 10.25% and the Permanent Assignment Facility (FPC) at 16.25%.

The Mandatory Reserves (RO) coefficients for domestic and foreign currency liabilities are also maintained at 11.50% and 34.50%, respectively, the Bank of Mozambique said.

The regulator states that "the risks and uncertainties associated with inflation projections have worsened" and at "a domestic level, the intensification of military instability in the northern part of the country stands out, with an impact on fiscal pressure and the suspension of the Mozambique LNG project" for the production of liquefied natural gas.

On the other hand, he continues, greater exchange rate volatility prevails, due to high uncertainties and asymmetries in the process of forming expectations of operators in the foreign exchange market.

"In the external environment, we highlight a greater fluctuation in the prices of financial assets and commodities and the emergence of new variants of the coronavirus," the text states.

The CPMO revised inflation downward, decelerating to 5.19% in April, after 5.76% in March, as a result of the recent appreciation of the metical and the dissipation of the impact of the bad weather that struck the country earlier in the year.

The economy is expected to recover more slowly in 2021, underpinned by weak domestic demand coupled with the suspension of the gas exploration project by Total, notwithstanding the forecast gradual pick-up in external demand and the trend towards curbing the spread of covid-19.

"Given the limited space for monetary policy and the State Budget, it is still pertinent to deepen structural reforms in the economy, with a view to strengthening institutions, improving the business environment, attracting investment, and creating jobs," the statement said.

Domestic public debt remains high and increased slightly by 310 million meticais to 205.5 billion meticais. International reserves remain at comfortable levels, standing at just over 3.9 billion dollars, enough to cover more than six months of imports of goods and services, the regulator added.