The Government, through the Ministry of Economy and Finance (MEF) foresees an increase in the monetary policy interest rate (MIMO rate) between 2023 and 2025, with a view to minimizing the generalized rise in prices of goods and services. The forecast is contained in the bulletin “Medium Term Fiscal Scenario 2023-2025” released a few days ago by the MEF. Focusing on the risks to the economy in the next three years, the document reveals that the possibility of accelerating the inflation rate to levels above the projected constitutes an important source of risk for the present macro-fiscal framework. “The current international situation characterized by the conflict between Russia and Ukraine generates uncertainty about the trajectory of the prices of food and energy goods worldwide. The prospects for international prices for these goods point to an acceleration in the medium term if the conflict between those two countries”, reads the document. As a result of the conflict, the MEF says that domestic prices may increase, as the country is a net importer of essential goods, especially cereals and fuel. The source points out that the increase in food and fuel prices on the domestic market will affect the general price index, with the possibility of creating pressure on inflation-indexed expenditure items, such as expenditure on wages and salaries, goods and services, pensions and social assistance to populations. The MEF says that the risk of inflation can be minimized through a stance of tightening monetary policy by the Central Bank, to keep inflation low and stable, without, however, affecting efforts for economic growth. “The prospects of accelerating inflation may increase domestic interest rates with an effect on domestic debt service. High inflation levels may require a tightening of monetary policy in the medium term through the worsening of the monetary policy interest rate (MIMO) and its transfer to market interest rates with an effect on debt service with flexible interest rates”, reads the Medium Term Fiscal Scenario. It should be noted that, at the end of last March, the Bank of Mozambique made the first increase in the MIMO rate by 200 basis points, from 13.25 percent to 15.25 percent. The Bank justified the decision with an upward revision of the inflation outlook for the short and medium term, mainly influenced by the war in Ukraine. (Letter) Source: Carta de Moçambique

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