Mozambique’s central bank left its monetary policy rate steady at 14.25 percent and forecast single-digit inflation by the end of the year but raised the reserve requirement for foreign currency deposits by 900 basis points to 36 percent given the likelihood inflation could accelerate if the external environment continues to deteriorate and the metical’s exchange rate falls.
In a statement issued after an extraordinary meeting of the Bank of Mozambique’s (BM) monetary policy committee, BM said it adjusted its monetary policy stance to preserve macroeconomic stability by raising the reserve requirement for foreign currency deposits after new information that strengthens its perception of external risks along with the greater volatility of the U.S. dollar as compared with its expectations at the February policy meeting.
BM kept its reserve requirement for local currency deposits at 14.0 percent.
The Bank of Mozambique kept its rate steady in February and last cut its rate in December 2018. Since April 2017 the central bank has cut its benchmark MIMO rate by a total of 900 basis points as inflation has decelerated from almost 22 percent in March 2017 to 3.78 percent in January.
BM said the decision to keep its policy rate steady today was justified by the fact that inflation remains low and stable and the projection that it will be in single digits by the end of this year.
However, BM said the domestic currency market is under increasing pressure and the metical had declined to 62.73 to the U.S. dollar as of March 5 for a fall of 2.15 percent since the end of 2018.
Analysts expect BM to keep its rate steady this year to ensure low inflation and encourage private consumption.