Mozambique trims key rate to 11.8%

Mozambique's economy is facing challenges amidst a liquidity crunch and the impact of US tariffs, as discussed in a recent CNBC Africa interview with Celio Hamide, the Head of Sales of Global Markets at Standard Bank. The country's dollar bond slid after Moody's ratings cut the assessment of the local currency debt and warned of a severe liquidity crunch. Concurrently, the central bank has been cutting rates for the eighth consecutive meeting, marking the longest unbroken easing cycle since the introduction of the MIMA rate in 2017. Celio Hamide shared insights on the implications of these developments. He highlighted the scarcity of FX liquidity since the central bank decision to return fuel payments. However, he mentioned that the central bank has introduced temporary measures to address the issue by increasing the conversion ratio of export proceeds from 30 to 50, which is set to be applicable for the next 18 months. Hamide viewed these measures positively, indicating a potential improvement in left-hand side flows in the market. He also discussed the potential impact on import and export flows from the new initiatives regarding the conversion ratio of export proceeds. Furthermore, he emphasized the need for caution and prudence in implementing changes to avoid creating shocks in the market. From a sales perspective, Hamide discussed the risks and considerations for import and export flows in response to the market dynamics. In assessing the central bank's strategy on interest rates, Hamide expressed expectations of further rate cuts in the upcoming periods, potentially bringing the repo rate below 10 percent. He noted that the central bank's actions were in line with projections, considering the inflation perspective and the stability in FX prices. The interview also covered the impact of US tariffs on Mozambique, highlighting the potential effects on trade prices and global inflation. Hamide anticipated an increase in raw material prices and inflation due to the tariffs, emphasizing the importance of monitoring and managing these factors in the economic landscape. As Mozambique navigates through these challenges, including political risks and external pressures, the role of the central bank in maintaining a balance between price growth containment and economic support remains crucial. The country's economic outlook will continue to be shaped by both domestic and international factors, requiring strategic decisions and proactive measures to mitigate risks and foster sustainable growth.