WASHINGTON: Mozambique’s central bank raised its key rate by 300 basis points to 17.25 percent, the fourth rate increase this year, as it tries to put a lid on soaring prices in the cash-strapped southern African nation. Policy makers also increased the interest rate on the standing deposit facility to 10.25 percent from 7.25 percent, Governor Ernesto Gove told reporters in the capital, Maputo. “We recognize these decisions are not favorable to businessmen but they are necessary,” Gove said. “These are sacrifices we need to make today.”
Building the country’s foreign exchange reserves should be the central bank’s primary objective as increasing rates won’t have much impact on reducing inflationary pressure, according to Hanns Spangenberg, a senior economist at NKC African Economics.
Mozambique holds foreign reserves of $1.9 billion, enough to cover three months worth of imports, the governor said. “It looks like they haven’t been scared to make big hikes in the last few months,” Spangenberg said by phone from Paarl, South Africa. “They’re doing all they can to curb inflationary pressure, but we don’t see it doing much. I don’t think you’ll see a drastic drop in inflation from such a hike because of the supply-side nature of inflation.”
