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Mozambique: Metical rose 17% this year and leads gains worldwide

The metical is the currency that has appreciated the most since the beginning of the year, gaining 17% against the US dollar and improving to the level of January 2020, with analysts predicting more short-term gains.

According to data on the metical’s exchange rate against the US dollar seen by Lusa News Agency, the Mozambican currency has appreciated by 17% since the beginning of the year, when 75 meticais were needed to buy one dollar, whereas on Friday, 62 meticais sufficed (average exchange rate).

According to analysts at the Rand Merchant bank, the appreciation of the metical is expected to continue in the coming weeks due to the excessive liquidity of the US dollar in the market and the action of the Mozambican central bank.

“Due to the liquidity of US dollars in the market, in a context in which mining activity gains traction, we expect the metical to strengthen and we anticipate that the central bank will allow this growth in the liquidity of the US currency, which should further strengthen the metical, to appease the effects of inflation caused by imports,”, analysts Neville Mandimika and Daniel Kavishe write in an analysis note.

The metical was relatively stable during January at 75 meticais per US dollar and started to appreciate in late February, having appreciated as far as 62 meticais on Friday. To find the Mozambican currency trading at these values, we have to go back to January 2020, before the Covid-19 pandemic.

The appreciation of the metical follows its fall of about 10% in value against the US dollar during the past year, and appears in counter-cycle with the forecasts of most analysts, who had foreseen an even greater fall of the metical this year. Furthermore, it happens despite the wave of violence in the north of the country, which has catapulted Mozambique to the top of the international media agenda in recent weeks.

At the end of February, analysts at NKC African Economics, for example, estimated that Mozambique’s national currency would continue to fall this year, making 77.7 meticais per US dollar necessary, up from 69.5 last year.

The appreciation of the Mozambican currency comes despite the downward revision of the forecast for economic growth for this year by the International Monetary Fund, which dropped the estimate of 2.1%, made in October last year to 1.6%, last week.

It also 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 (MIMO rate) at 13.25%, justifying the decision with the “prevalence of high risks and uncertainties, despite the downward revision of inflation prospects in the short and medium term”.

“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” was expected, 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 reduced substantially, with the demand for foreign exchange “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”.

Sources: https://clubofmozambique.com/news/mozambique-metical-rose-17-this-year-and-leads-gains-worldwide-lusa-189150/

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