The Bank of Mozambique (BdM), through its Monetary Policy Committee (CPMO) decided this Wednesday (26) to reduce the monetary policy interest rate, MIMO rate, from 12.25% to 11.75%.

The measure, according to the BdM, stems essentially from the fact that the outlook for inflation remains in the single digits in the medium term, despite the increased uncertainty about the effects of the worsening fiscal risk.

In the same session, the CPMO also decided to keep the inflation outlook at single digits in the medium term.

Last February, annual inflation stood at 4.74%, after 4.69% in January. Underlying inflation, which excludes fruit and vegetables and goods with administered prices, remained stable.

"The maintenance of a single-digit inflation outlook in the medium term essentially reflects the stability of the Metical and the impact of the measures taken by the CPMO," the document says.

For the medium term, excluding liquefied natural gas (LNG), moderate economic growth is expected. In the fourth quarter of 2024, it is estimated that, excluding LNG, gross domestic product (GDP) will have contracted by 3.1%, after having grown by 2.8% in the previous quarter.

When LNG is included, GDP contracted by 4.9%, after growing by 3.7% in the previous quarter. In the medium term, economic activity, excluding LNG production, is expected to gradually recover, despite uncertainties about the impact of climate shocks on agricultural production and various infrastructures and the effects of post-election tension on sectors of activity.

Meanwhile, the pressure on domestic public debt continues to worsen. Domestic public debt, excluding loan and lease contracts and outstanding liabilities, stands at 447.2 billion meticais, which represents an increase of 31.7 billion compared to December 2024.

On the other hand, money market interest rates continue to fall. The bank cites as an example the reference interest rate for credit, Prime Rate, which continues to fall, in line with monetary policy decisions.

The same behavior can be seen in the interest rates that banks charge their customers. For its part, credit to the economy increased by 5.7% from January 2024 to January 2025.

The risks and uncertainties associated with inflation projections have increased. The impacts of the worsening fiscal risk, in a context of growing challenges for mobilizing financial resources for the State Budget, and the effects of climate shocks and post-election tension on the prices of goods and services are likely to increase inflation in the medium term.

Photo DR)