Mozambique Hikes Key Interest Rate to 15%- a Four-Year High

Mozambique central bank has increased its key interest rate to a near four-year high, citing rising prices resulting from Russia’s invasion of Ukraine and the effects of tropical cyclones that struck the country earlier this year.

The Banco de Mocambique raised the rate to 15.25% from 13.25%, Governor Rogerio Zandamela told reporters Wednesday in Maputo, the capital. That’s the first increase since last January and takes the rate to the highest since June 2018, when it was 15.75%.

While annual inflation slowed in February, fuel costs have since increased to a record fanned by sanctions on Russia and the war in Ukraine, heightening risks of a surge in consumer prices in the coming months. The net wheat importer also faces price pressures on food due to severe cyclones that devastated agricultural fields and a spike in the cost of the grain since the war started. Ukraine and Russia ship more than a quarter of the world’s wheat, and the fighting has halted shipments.

The MPC sees inflation accelerating in the short to medium term and revised its forecasts upward, Zandamela said without providing details.

According to an October forecast from the International Monetary Fund, Mozambique’s gross domestic product is projected to expand by 5.3% this year. That’s more than double the growth rate forecast for 2021, with output set to rebound from a pandemic-induced slump and natural gas exports due to start in the second half of the year.

Fitch Ratings said this month it expects inflation to average 8.5% this year on the back of higher oil and food prices.

Mozambique’s move comes as emerging markets from Egypt to Ghana raise borrowing costs to curb runaway inflation and attract investors seeking higher yields due to the war in Ukraine and the U.S. Federal Reserve pivoting toward more aggressive rate hikes to fend off mounting price pressures.

Read also; World Bank Approves $380 Million for Malawi & Mozambique.

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