Mozambique Holds Key Rate Unchanged for 2nd Meeting

The Bank of Mozambique left its key MIMO interest rate at 9.25% in May 2026, the lowest level since December 2015, marking the second consecutive hold. The decision reflects the prevalence of high uncertainty over the duration of the Middle East conflict and its potential impact on supply chains, as well as international and domestic fuel and food prices. The annual inflation rate in Mozambique accelerated for the third consecutive month, reaching a six-month high of 4.41% in April 2026. Inflation is expected to accelerate in the short to medium term, potentially reaching double digits, depending on how the conflict evolves. Meanwhile, the Committee decided to increase the reserve requirement ratio for liabilities in domestic currency from 29% to 39%, aiming to absorb excess liquidity in the banking system that could generate additional inflationary pressure. The reserve requirement ratio for foreign currency liabilities was set at 29.5%.

The Bank of Mozambique maintained its main policy rate at 9.25% in March 2026, keeping it at its lowest level since December 2015 and pausing the easing cycle that began in 2024. The decision reflects rising external concerns regarding inflation expectations, driven by the conflict in the Middle East, as well as domestic uncertainty surrounding production and supply chains following flood-related damage earlier in the year. Headline inflation rose to 3.2% in February, after reaching a little over one-year low of 3.04% in January. The economy expanded by 4.7% in the final quarter of 2025, following a contraction of 0.9%, reflecting improved performance. Economic growth expectations have moderated with activity projected to increase slowly and gradually. Meanwhile, domestic public debt continues to deteriorate, hindering financial markets, as delays in the payment of domestic public debt by the State persist, impacting the demand for government bonds and the rigidity of interbank rates.

The Bank of Mozambique cut its main policy rate by 25 basis points to 9.25% at its first meeting of 2026, extending an easing cycle that began in 2024 and taking borrowing costs to their lowest level since 2015. The decision was supported by expectations that inflation will remain in single digits over the medium term, despite rising risks and uncertainties, particularly from recent flooding and elevated trade and geopolitical tensions. Mozambique’s inflation rate slowed to 3.23% in December from 4.38% in November, marking its lowest level in 13 months and staying in line with the central bank’s single-digit inflation target. However, inflation is expected to pick up later this year, driven by some monetary financing of the budget deficit, the restart of major LNG construction projects, and the possibility of a metical devaluation.