Bank of Mozambique intervenes in market to control inflation and exchange rate

21 December 2010

Maputo, Mozambique, 17 Dec – Strong intervention by the central bank helped to keep inflation and the exchange rate under control, the governor of the Bank of Mozambique said last Friday in Maputo.

Cited by the Mozambican press, Ernesto Gove said that at the beginning of 2010 the rise in inflation had been much greater than expected due to rains, which affected the domestic supply of vegetables, and due to the fact that the government gave up control of the prices of some products, such as fuel, the prices of which rose in March, April and May.

Exchange rate volatility for the Mozambican currency, the metical, began at the end of October 2009 and significantly worsened in March/April 2010, due to a delay by donors in paying out the funds they had pledged and to a rise in demand for foreign currency to pay for imports, specifically of fuel.

According to the governor, the central bank responded by increasing the basic discount rate by 400 basis points to 15.5 percent and increasing sales of foreign currency on the interbank market.

“These measures seem to have worked as inflation from January to August was 17.08 percent, but by the end of November it stood at 15.06 percent,” Gove said.

In terms of the exchange rate, which at retail banks reached almost 40 meticals per US dollar, in December of this year it stood at around 35 meticals per dollar. (macauhub)