Mozambique Holds Rates Eying Double-Digit Inflation Threat

Boats on the waterfront at dusk in Maputo, Mozambique, on Thursday, Nov. 28, 2024. The continued disruption following election results disputes is hitting the already strained state finances with annual inflation in Mozambique edged up to 2.7% in October. Photo by Kang-Chun Cheng /Bloomberg

Article content

(Bloomberg) — Mozambique’s central bank kept its benchmark interest rate unchanged for the second time in a row as surging global energy costs push local prices higher and muddy the inflation outlook. 

Article content

The Banco de Moçambique left the rate, known by its Portuguese acronym Mimo, at 9.25%, Governor Rogerio Zandamela said Monday. It also raised the local-currency reserve ratio requirement to 39% from 29% in a bid to soak up excess liquidity and tame price pressures.

Article content

Article content

Article content

Mozambique joins a growing number of central banks, including those in Nigeria and Ghana, in keeping interest rates steady as officials assess how surging energy and food prices stoked by the Iran war will affect the inflation outlook.

Article content

Article content

Annual inflation accelerated to 4.4% in Mozambique April, the highest since October, placing further pressure on the already struggling southeast African nation. The economy shrank 0.5% last year and debt servicing and public-sector wages consumed 87% of tax revenue.

Article content

“In the short and medium term, an acceleration of inflation is anticipated which could reach double digits, depending on the duration of the conflict in the Middle East,” Zandamela said in a speech. “The inflation forecast reflects the direct and indirect effects of the adjustment of domestic prices for liquid fuels, the intermittency in their supply, and imported inflation, despite the stability of the metical and weak economic activity.”

Article content

The government raised diesel pump prices by 46% this month and shortages at filling stations prompted the finance ministry to step in with support to improve fuel availability. Mozambican businesses have faced dollar shortages for months, with the metical unchanged against the dollar since 2021 even as the International Monetary Fund called for greater currency flexibility.

Article content

Article content

Zandamela reiterated that the central bank won’t step in to help the government finance fuel imports.

Article content

And in an unusual step, he highlighted that the government was in arrears to multilateral creditors and repeated a warning that delays in servicing local-currency debts were undermining appetite for public securities. The IMF in February flagged that the gas-rich nation had fallen behind on debt payments to a raft of bilateral and multilateral lenders.

Article content

Sign up here for the daily Next Africa newsletter and subscribe to the Next Africa podcast on Apple, Spotify or anywhere you listen.

Article content

(Updates with governor’s comments from second paragraph.)

Article content