Ex-IMF Central Banker Gets Tough on Inflation in Mozambique

  • Zandamela hiked key rate to highest in more than a decade
  • Currency has weakened 39% against the dollar this year

Mozambique’s new central bank governor is drawing on three decades of experience at the International Monetary Fund to tame surging inflation in the southern African country.

Two months into the job, Rogerio Zandamela stamped his authority on the position at the weekend by hiking the key rate to the highest level in more than a decade, according to central bank data. The 600-basis-point increase announced after Friday’s Monetary Policy Committee meeting almost matched the margin by which his predecessor raised borrowing costs at four previous announcements this year.

The inflation rate in the coal-producing country has more than doubled since the start of the year. The metical slumped 39 percent against the dollar after a freeze in donor aid exacerbated a shortage of foreign exchange that resulted from a drop in commodity-export receipts, making it the continent’s worst-performing currency in 2016. Zandamela’s experience at the IMF, where he worked on countries from Brazil to Somalia, influenced his decision to raise rates, according to Celeste Fauconnier, an Africa analyst at Johannesburg-based FirstRand Ltd.’s Rand Merchant Bank.

“It boils down to the new governor being part of the IMF for so many years,” Fauconnier said Monday by phone. “It will definitely appease the IMF because that is something the IMF would have asked them anyway to do if they were in a program with them.”

Controlling Inflation

The Washington-based lender said last month Mozambique must increase interest rates to counter inflation, prevent its currency from depreciating and safeguard macroeconomic stability. The nation’s finances came under pressure as the global commodity slump hurt earnings from exports such as coal. That worsened after foreign donors, including the IMF, withdrew funding when they found out in April the government had kept hidden as much as $1.4 billion of debt.

President Filipe Nyusi has indicated a willingness to allow an independent audit of the country’s debt, a precondition for a resumption of loans, the IMF said in September. The debt scandals and suspended aid may render the central bank’s efforts to curb inflation ineffective, according to Hanns Spangenberg, a senior economist at Paarl, South Africa-based NKC African Economics. 

The IMF projects Mozambique’s debt at almost 113 percent of GDP this year and at 103 percent in 2017, according to a regional economic outlook report published Tuesday.

Inflation could accelerate to as much as 34 percent by the end of the year, while fourth-quarter economic growth may slow to 3.5 percent compared with 6.4 percent in the corresponding period last year, Zandamela, 59, told reporters in the capital, Maputo. The jump in borrowing costs may not be enough to control price growth, he said.

“The decision can be seen as an indication that Zandamela is more in tune to the IMF’s advice than” former Governor Ernesto Gove was, Mark Bohlund, a London-based economist at Bloomberg Intelligence, said by e-mail. “It also stakes his ground vis-a-vis the government.”

Foreign Currency

Zandamela also ordered commercial banks to report on their foreign-exchange rates three times a day and limited their access to liquidity from the central bank to twice weekly. Earlier this year, the central bank asked banks to hold reserves in foreign currency in a bid to build the nation’s stock. The country held only $1.69 billion of foreign exchange at the end of September, enough for 2.4 months of imports, according to central bank data.

“We’ve seen other African countries, notably Angola and Nigeria, attempt this route in an effort to curb depreciatory pressures on their local currencies, but the effects have been largely adverse,” NKC’s Spangenberg said in an e-mailed note to clients. “While the latest additional requirements do not imply de facto forex regulation tightening, this is something we will keep a cautionary eye on.”

The metical traded 0.6 percent weaker at 78.2750 per dollar at 11:37 a.m. in Maputo on Tuesday.

— With assistance by Borges Nhamire, and Simbarashe Gumbo

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