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BoM predicts inflation of 27% or 30%; reserves up, devaluation halted

December 15, 2016

 

Annual inflation is expected to hit 30% by the end of the year, the Bank of Mozambique Monetary Policy Committee said in a statement issued Wednesday 14 December. http://www.bancomoc.mz/ But the governor of the Bank of Mozambique, Rogerio Zandamela, told a Wednesday press conference that although annual inflation in November had risen to 26.8%, he expected inflation at the end of the year to be only 27%. (AIM En 14 Dec) Standard Bank (13 Dec) predicts 25%.

Zandamela and the IMF at the end of its mission this week (see below) both said that the drain on Mozambique’s net foreign reserves has been reversed. Despite reduced foreign direct investment flows and cuts in donor financing, the rapid devaluation combined with the failure to pay debt service and the sharp squeeze on access to foreign currency have increased foreign currency reserves. Also since November the commercial banks have sold $174 million to the central bank. The World Bank, in a report issued this week (see below), said that imports of goods this year will be 33% lower than in 2015. Foreign currency reserves are measured both in US dollars and in the number of months of imports they will cover, which will have increased because monthly imports are falling.

According to Zandamela, and IMF and World Bank reports published this week, reserves stood at $1.99 billion dollars at the end of 2015, equivalent to 3.2 months of imports (excluding megaprojects), but had fallen to $1.68 bn in October (2.9 months of imports). This has now risen to $1.75 bn, enough to cover 3.5 months of imports.

The Bank of Mozambique Monetary Policy Committee yesterday decided to make no changes to interest rates or reserve requirements, noting particularly that the exchange rate has stabilised. After a year of rapid devaluation, the value of the Metical has been stable and actually improved slightly since mid-October. 

Zandamela said that the sharp interest rate rises of October were having the desired effect of mopping up excess liquidity and halting the depreciation of the Metical. However, last year when there were comments about the Metical being badly overvalued, numbers being cited as the correct exchange rate were close to the current values.

At the beginning of this year the exchange rate was MT 47 = $1. By mid-October it had gone to MT 78 = $1, and has fallen slightly to MT 74 = $1 now. Similarly the rate to the South African Rand was MT 3 = 1 Rand, went to MT 5.6 = 1 Rand in October, and has dropped slightly to MT 5.4 = 1 Rand now. Standard Bank (13 Dec) predicts a fall to MT 65 = $1. (There are exchange rate graphs in the pdf version of this newsletter.) 

 

Source: Bank of Mozambique 

 

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