Mozambique holds rate, targets 7.0% growth for 2016

    Mozambique's central bank left its benchmark standing facility rate steady at 9.75 percent and set what it described as "challenging macroeconomic objectives for 2016," including inflation of 5.6 percent, economic growth of 7 percent and adequate international reserves.
    The Bank of Mozambique (BM), which raised its rate by 225 basis points in 2015, added that the 2016 goals were set in a context of drought and flooding in some parts of the country and weak global economic activity, particularly in emerging market economies.
    BM also said it was targeting a monetary base of 70.211 billion meticais for January, down from 73.711 billion in December, which was 6.3 percent above its target.
    Annually, the monetary base in December rose by 16.4282 billion, or by 28.7 percent, due to a higher-than-expected expansion of notes and coins in circulation and the impact of exchange rate depreciation on the deposits of residents and non-residents in credit institutions.
    Mozambique's inflation rate jumped to a 2015-high of 10.55 percent in December from 6.27 percent in November, the highest rate since 2010, the central bank said, attributing the behavior of prices to the depreciation of the metical's exchange rate, an adjustment of administered prices that had been unchanged since 2010 and a "wave of price speculation of food and beverages in December, especially in the run up to the festive season."
    Mozambique's metical was volatile last year, reflecting shocks to the country's economy, the continued rise in the U.S. dollar, the fall in prices of the main goods exported from Mozambique and reduced foreign direct investment and foreign aid flow.
    The metical was quoted at 44.95 to the U.S. dollar on Dec. 31 on the Interbank Foreign Exchange Market (MCI) for a monthly appreciation of 14.82 percent, but an annual depreciation of 42.25 percent. The rise in the metical's exchange rate in December was attributed by the BM to a package of measures aimed at restoring stability.
    Based on prices quoted by commercial banks, the BM said the average exchange rate on Dec. 31 was 47.3 metical to the dollar, a monthly appreciation of 14.82 percent and an annual depreciation of 39.6 percent.
    The outlook for Mozambique's economy remains robust, according to the International Monetary Fund, with growth in 2015 seen at 6.3 percent and 6.5 percent in 2016, below its potential due to a stagnant mining sector and higher fiscal and monetary policies.
    Mozambique's Gross Domestic Product expanded by an annual 5.9 percent in the third quarter of last year, up from 5.7 percent in the second quarter.
    In the medium term, the IMF expects Mozambique's growth to recover to 7.5-8 percent helped by investments in natural gas projects and higher coal output if agreements can be reached.
   
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