Mozambique holds rate, flooding could pressure reserves

    Mozambique's central bank held its benchmark interest rate on the standing lending facility steady at 9.5 percent, saying it was focused on ensuring economic and financial stability following widespread flooding that has impacted economic activity, inflation and the balance of payments.
    The Bank of Mozambique (CPMO), which cut rates by 550 basis points in 2012 but has held rates steady since November, said the "domestic economic situation continued to be characterized by the effects of floods, especially agricultural production, with a significant impact on the behavior of inflation and the balance of payments, where the bank expects higher demand for imports of food and equipment, which could represent pressure on international reserves."
    Mozambique's inflation rate rose to an annual 4.18 percent in February from 2.73 percent in January and the bank said it would intervene in the interbank market to ensure that the monetary base does not exceed 36.694 billion meticais by the end of March, down from a target of 37.16 billion end-February.
    On the final day of February, Mozambique's net international reserves fell by $US 94.5 to 2.39 billion due to foreign exchange sales by the central bank totaling $66 million to pay for imports, particularly liquid fuel, which cost $91 million, CPMO said.

    The metical depreciated by 0.03 percent during February, and was quoted at 29.99 to the U.S. dollar at the end of last month.
    Mozambique's Gross Domestic Product rose by an annual rate of 6.8 percent in the third quarter, down from the second quarter's 8.0 percent, but this was prior to flooding in recent months that has affected large parts of the country. Many economists have started to cut their growth forecasts.
    But in its latest economic review, the central bank said that it expects inflation to accelerate slightly in 2013, to around its target of 6.5 percent, while GDP growth may accelerate to nearly 8.4 percent.
    In its review of Mozambique's economy, the International Monetary Fund in December described the country's economic performance last year as "remarkable" with policies that have supported growth while bringing down inflation and strengthening international reserves.
    It forecast economic growth of 7.5 percent in 2012 and 8.4 percent in 2013, helped by an expansion of the country's coal industry.
    It also said the gradual easing of monetary policy last year has supported private sector credit growth and preserved the low inflation environment and government's budget was prudently executed, helping foster economic stability despite global uncertainty.

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