The Monetary Policy Committee of the Bank of Mozambique (CPMO) has decided to increase the Interbank Money Market Rate (MIMO) from 13.25% to 15.25 percent, according to a note from the Bank of Mozambique (BM).

The MIMO rate is used by the central bank for its interventions in the interbank money market to regulate liquidity.

"The increase in the MIMO rate," it says, "seeks to maintain inflation control in the short to medium term, to allow a gradual transition to single-digit interest rates in a context of resumption of the program with the International Monetary Fund (IMF), and the implementation of natural gas projects."

This rise follows a period of more than a year (since January 2021) in which interest rates had been stable.

The CPMO justified the increase in interest rates on the grounds that the inflation outlook has deteriorated.

To this the WB attributes the following causes, the increase in geopolitical conflict in Europe and natural disasters in the center and north of the country that threaten a price hike.

The outlook, the CPMO warned, is for "an acceleration of general and underlying inflation in the short to medium term, mainly reflecting the direct and indirect effects of rising fuel and food prices," despite the stability of Mozambique's currency, the Metical.

The CPMO put annual inflation in February at 6.8%.

The central bank remained optimistic that economic activity in Mozambique will recover in 2022, despite the likely slowdown in external demand. This optimism stems from the easing of restrictive measures against covid-19, and the implementation of energy programs in Inhambane and the Rovuma Basin in Cabo Delgado.

The Inhambane program refers to the Temane Thermal Power Plant (CTT) and in the Rovuma Basin, to the first of the liquefied natural gas (LNG) projects.

OP CPMO also recorded an increase in domestic public debt, which rose from 220.6 billion meticais (about $3.45 billion) in December to 242.3 billion meticais in March.