Fitch Solutions foresees interest rate cut to 12.25% in Mozambique

Fitch Solutions prevê descida da taxa de juro para 12,25% em Moçambique

The consulting firm Fitch Solutions said Monday that Mozambique's central bank is expected to lower its central interest rate by 1 percentage point in the second half of the year, ending the year at 12.25%.

"The stable outlook for inflation, against a backdrop of a weaker exchange rate and little demand pressure, will make room for a more aggressive outlook in the coming quarters, particularly when economic activity will remain weak," write the analysts at this consultancy owned by the same owners of the financial rating agency Fitch Solutions.

"We anticipate that the Bank of Mozambique will lower its benchmark interest rate by 100 basis points to 12.25% in the second half of this year, after maintaining the rate at last week's meeting," the analysts say, pointing out that they also expect the banking regulator to "maintain the interest rate at 12.25% in 2022, in a context of strengthening economic growth and controlling inflation."

The Monetary Policy Committee (CPMO) of the Bank of Mozambique decided last 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 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.

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