Bank of Mozambique cuts rates, warns of ‘severe’ effect of prolonged Covid-19 restrictions

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The Bank of Mozambique today lowered interest rates again, saying its inflation forecasts have fallen substantially due to a fall in internal demand that would accompany a prolonging of the restrictions under the current state of emergency to prevent the spread of Covid-19.

The central bank cut its policy interest rate, known as the MIMO rate, by 150 basis points to 11.25%, and cut the rates on its Permanent Deposit Facility and Permanent Lending Facility by 150bp each, to 8.25% and 14.25% respectively. Minimum reserves on deposits in domestic and foreign currency remain at 11.5% and 34.5%, respectively.

In a statement released this afternoon, the BM said that the economic consequences of Covid-19 are expected to be severe — in addition to an “already debilitated” Mozambican economy, due to cyclones Idai and Kenneth last year, and military instability in the north and centre of the country.

“The combination of these factors will imply contractions in the extractive and manufacturing industries, as well as in the transport, trade and services, and hotels and restaurants, which in total represent around 58% of GDP. The perspectives of good performance in agriculture, a sector with around 25% of GDP, may not be sufficient to overcome the negative effects of the other sectors of the economy,” the central bank’s Monetary Policy Committee said.

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