A decision has been taken primarily due to the maintenance of inflation prospects in single digits over the medium term, reflecting partly the stability of the exchange rate and the favorable trend in international commodity prices, despite prevalent domestic risks and uncertainties associated with projections, stated the governor during a press conference in Maputo at the conclusion of the CPMO meeting, held every two months.
Mozambique’s benchmark interest rate was set at 17.25% since September 2022, following central bank intervention, which then initiated consecutive cuts starting January 31, 2024, reducing it to 16.5%.
In March of last year, Banco de Moçambique cut the rate 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 new cut in May to 11.00%, in July to 10.25%, and now to 9.75%.
“The CPMO will continue the process of normalizing the minimum rate over the medium term, albeit in modest magnitudes—I would say increasingly modest—the pace and magnitude will continue to depend on inflation prospects, as well as the assessment of risks and uncertainties underlying the medium-term projections,” the governor further noted.
The governor recalled that this “normalization process” was initiated at the beginning of 2024, with an initially estimated timeframe, and now realized, of “24 to 36 months,” eventually “benefiting” families, companies, and the state, accumulating a drop of 700 basis points.
“It was a huge gain in the system,” he pointed out, although acknowledging that the banks’ reference interest rate for their customers also “reduced substantially,” about 600 basis points in the same period, but did not fully accompany the decline in the central bank’s benchmark rate, due to customer profile dependency.
Zandamela added that, for the medium term, “a gradual recovery of economic activity” is anticipated in Mozambique, “favored, in part, by the prospects of implementing projects in strategic areas.”
He also mentioned that the “risks and uncertainties associated with inflation projections remain elevated” in Mozambique, highlighting “as probable factors of increased inflation in the medium term,” primarily “the worsening of the fiscal situation in a context of growing challenges for mobilizing financial resources for the state’s fiscal budget.”
“Secondly, the impact of climate shocks. And thirdly, the impact of the slowness in restoring productive capacity and supply of goods and services,” he pointed out.
