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Mozambique: ‘Valuation of the metical only useful if reflected on the economy’

The president of the Confederation of Economic Associations of Mozambique (CTA) told Lusa news agency yesterday that the sharp appreciation of the metical against the US dollar will only be useful if it has an effect on the economy.

“The most important thing is to see the effect [of the appreciation of the metical] on the economy,” said Agostinho Vuma, in an interview with the Lusa agency, lamenting the fact that the appreciation results from policies and not from national production.

The metical has risen 18.6% against the dollar since February, reversing the devaluation trend, making the Mozambican currency the most valued in the first months of this year worldwide.

In light of these data, the president of CTA, the largest Mozambican employers’ association, was skeptical of the advantages of the positive fluctuation of the national currency, doubting that it could have an effect on the economy.

“How are our interest rates today, which the metical appreciated? How is the mass financial circulation in the economy? How is the promotion of the credit portfolio for the productive sector,” inquired Agostinho Vuma.

He continued to point out that the metical’s gains in relation to the US currency are not the result of the dynamics of the Mozambican economy, but of factors of internal and external monetary policy, mainly the injection of liquidity in the major world economies to combat the covid-19 pandemic.

Also read: Mozambique’s Metical the world’s best performing currency since February

“I would be more satisfied if this appreciation of the metical originated in production, if we produced a lot and exported a lot, but we are not producing,” he noted.

The appreciation of the Mozambican currency occurs despite the downward revision of the forecast for economic growth for this year by the International Monetary Fund, which dropped from 2.1%, in October, to 1.6%, last week and the valuation appears following the measures taken by the central bank.

On March 17, the Monetary Policy Committee (CPMO) of the Bank of Mozambique decided to keep the monetary policy interest rate (known as MIMO rate) at 13.25%, justifying the decision with the “prevalence of high risks and uncertainties, no despite the downward revision of inflation prospects in the short and medium term “.

Expected are “a lower price increase, reflecting, fundamentally, the trend for appreciation of the metical resulting from the measures taken in the last session of the CPMO, in a context of weak economic activity”, added the regulator, who in January raised the MIMO rate by 300 basis points, to the current 13.25%.

According to the Bank of Mozambique, the exchange rate pressure has decreased substantially, with the demand for foreign exchange to be “fully satisfied”, as a result “of greater fluidity observed in the foreign exchange market, contrary to the trend registered at the beginning of the year”.

Source: Further Africa

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