Mozambique Raises Key Rate to 14.25% to Contain Inflation

  • Inflation rate rose to 18.3% in May as metical weakened
  • Currency has depreciated 20% against dollar this year

Mozambique’s central bank raised its key interest rate for a third time this year as a weakening currency led to soaring inflation in the southern African nation.

Policy makers increased the benchmark policy rate by 150 basis points to 14.25 percent, the Maputo-based institution said in a statement on Monday. The interest rate on the standing deposit facility was raised to 7.25 percent from 5.75 percent.

The annual inflation rate in the cash-strapped country rose to 18.3 percent in May after food prices jumped by about a third. The metical is Africa’s second-worst performing currency this year after the Angolan kwanza, weakening 20 percent against the dollar.

The monetary policy committee acted to contain inflationary pressures, Governor Ernesto Gove said in a statement on the central bank’s website.

“For now, the MPC is focusing on curbing inflationary pressures, although its attempts may prove to be rendered largely ineffective due to the supply-side nature of the inflationary pressures and lack of financial integration in Mozambique,” Hanns Spangenberg, a senior economist at NKC African Economics, based in Paarl, South Africa, said in an e-mailed note.

The fallout of the global commodity-price slump on Mozambique’s economy has been exacerbated by mounting public debt. The nation owes $11.6 billion to creditors, according to its Finance Ministry, and state-owned Mozambique Asset Management missed a $178 million interest payment on its $535 million loan on May 23.

The country is the continent’s biggest producer of coking coal, which is used in steel production, International Energy Agency data show, and is the site of one of the world’s largest natural gas fields.

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