“This measure stems mainly from the maintenance of single-digit inflation prospects in the medium term, reflecting in part the stability of the exchange rate and the favourable trend in international commodity prices, despite the prevalence of high risks and uncertainties associated with projections at the domestic level,” said the governor at a press conference in Maputo at the end of the CPMO meeting, which is held every two months.
The key interest rate in Mozambique had been set at 17.25% since September 2022, following intervention by the central bank, which then began consecutive cuts from 31 January 2024, when it reduced it to 16.5%.
In March last year, the Bank of Mozambique cut it to 15.75%, in May to 15%, in July to 14.25%, in September to 13.5%, in November to 12.75%, in January this year to 12.25% and in March to 11.75%, followed by a further cut in May to 11.00%, in July to 10.25% and now to 9.75%.
“The CPMO will continue with the process of normalising the minimum rate in the medium term, but in modest magnitudes – I would say increasingly modest – the pace and magnitude will continue to depend on the inflation outlook, as well as the assessment of risks and uncertainties underlying the medium-term projections,” he added.
The governor recalled that this “normalisation process” began in early 2024, with an estimated timeframe of “24 to 36 months”, which has now been achieved, ultimately “benefiting” families, businesses and the state by accumulating a decrease of 700 percentage points.
“It was a huge gain for the system,” he pointed out, while acknowledging that the reference interest rate charged by banks to their customers also “fell substantially,” by around 600 basis points over the same period, but without fully following the decline in the central bank’s key rate, as it depends on customer profiles.
Zandamela added that, in the medium term, “a gradual recovery in economic activity is expected” in Mozambique, “favoured in part by the prospects for the implementation of projects in strategic areas”.
He also said that the “risks and uncertainties associated with inflation projections remain high” in Mozambique, highlighting “as likely factors for increased inflation in the medium term”, first of all, “the worsening of the fiscal situation in a context of growing challenges for the mobilisation of financial resources for the state fiscal budget”.
“Second, the impact of climate shocks. And third, the impact of the slow recovery of productive capacity and the supply of goods and services,” he pointed out.
Platform with Lusa
