Bank of Mozambique predicts gradual economic recovery

Banco de Moçambique prevê recuperação gradual da economia

The Monetary Policy Committee (CPMO) of the Bank of Mozambique (BM) foresees a gradual recovery of the economy, driven by external demand.

This trend is mirrored in the indicators for the second quarter of this year which, according to the WB, show a growth in Gross Domestic Product (GDP) in 2 1Q2, thanks to the recovery of most sectors of economic activity.

However, according to the CPMO, the return to robust economic growth will continue to require deepening structural reforms in the economy, aimed at strengthening institutions, improving the business environment, attracting investment, and generating employment.

At its regular session held on Friday in Maputo, the CPMO decided to maintain the monetary policy interest rate, MIMO rate, at 13.25%.

"The decision is based on maintaining the single-digit inflation outlook despite the prevalence of elevated risks and uncertainties, especially those stemming from the impacts of Covid-19," the WB said in a press release.

Additionally, the CPMO decided to reduce the Mandatory Reserve ratios for domestic currency liabilities from 11.50% to 10.50% and for foreign currency liabilities from 34.50% to 11.50%, in order to make more liquidity available to the economy.

"The risks and uncertainties associated with inflation projections have softened, however, they remain elevated," he acknowledges.

Domestically, according to the statement, the easing of military instability in the northern part of the country and the prevalence of uncertainty about the prolongation and magnitude of the impact of Covid-19 on the economy, and about the dynamics of prices of administered goods and services, stand out.

"Externally, uncertainties regarding the evolution of the pandemic also remain, and there is added risk associated with constraints in the supply chains of goods and services, with the potential to limit the supply of imported products," he says.

The Central Bank reiterates that the prospects for single-digit inflation in the short and medium term remain.

"Annual inflation stood at 5.6% in August, after 5.5% in July, against a background of lower pricing of the metical against the US dollar. Core inflation, which excludes prices of administered goods and services while that of fruits and vegetables, increased slightly. For the short and medium term, inflation is expected to remain in single digits, despite the prospects of rising food and oil prices in the international market," he explains.

Given this environment, the WB reaffirms its commitment to preserving the value of the metical, which translates into low and stable inflation.

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