Mozambique raises rate a further 150 bps to curb inflation

    Mozambique's central bank raised its benchmark standing facility rate by another 150 basis points to 14.25 percent as it continues to tighten monetary conditions to contain rising inflation.
    The Bank of Mozambique has now raised its benchmark rate by 450 basis points this year and also raised the deposit rate by 150 points to 7.25 percent and said it would intervene in interbank markets to ensure that the monetary base reaches its target for this month of 68.0 billion meticais.
    In May the monetary base rose by 1.645 billion meticais to 73.356 billion, above the central bank's estimate of 69.507 billion due to the depreciation of the metical.
    Mozambique's inflation rate accelerated further to 18.27 percent in May - the highest rate since at least 2009 - from 17.29 percent in April as the impact of an increase in food supply last month during a time of drought was countered by the impact of reduced movement of goods and services due to political and military tension, and depreciation of the metical's exchange rate.
    The exchange rate of the metical has been hit by a combination of economic slowdown, persistent inflationary pressure, a suspension of foreign aid following the discovery of undisclosed debt to state-owned companies, and credit ratings' downgrades.
    The metical started depreciating against the U.S. dollar in December 2014 and lost 31 percent in 2015. It's decline has continued this year and today it was trading at a historic low of 60 to the dollar, down 20 percent so far this year.
    Mozambique's international reserves fell by US$80.3 million to $1.7138 billion in May.
    Military and political tension, floods and drought, and lower commodity prices has led to reduced agricultural output, transport, mining and tourism in the first quarter of this year, the bank said.
    Mozambique's Gross Domestic Product expanded by an annual 5.3 percent in the first three months of the year, down from 7.1 percent in the same 2015 quarter.
    Mozambique's business climate indicator deteriorated for the third straight month in April to 96.7 to the lowest level since September 2005, with confidence in industry falling the most, followed by lower confidence in accommodation and restaurants and other services. In contrast, confidence in retail, construction and transport rose.

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