The Confederation of Business Associations of Mozambique (CTA) advocates the adoption of urgent and effective measures, at least in the short term, in order to
minimize the depth of the negative impacts on the business sector and on the national economy as a result of the increase in interest rates.
On the one hand, it is proposed to renew the measure concerning the withdrawal of the obligation to make additional provisions for customers affected by the new coronavirus.
The private sector believes that this measure can help minimize the impact of the rising cost of capital, facilitating the restructuring of loans that may, to some extent, ease the burden of corporate obligations at a time when uncertainties remain about the evolution of the economy in the near future in the face of this new wave of Covid-19 spread.
It is also proposed to renew and strengthen the package of tax and customs measures, such as the postponement of payments on account for the 2021 fiscal year, compensation of Value Added Tax credits with Value Added Tax credits with other taxes and early release of goods.
These measures, when implemented effectively and comprehensively (with emphasis
to micro, medium and small enterprises), can contribute significantly to the relief of the burden of obligations of the units, ensuring their survival and the maintenance of jobs.
Therefore, it believes that an increase in the cost of capital by 300 basis points in a
could create a disruption in the cash flow of companies, making it difficult, on the one hand, to absorb and internalize the new credit conditions and, on the other hand, the very survival of units, especially SMEs.
According to the CTA, a curious fact, which should be highlighted, is that the magnitude of this increase in the MIMO rate (300 basis points) exceeds the cumulative magnitude of reduction recorded during the last 12 months, which totals 250 basis points.
In other words, in one month, the interest rate varied by a magnitude greater than the cumulative sum of the variations registered in a year, in addition to the fact that over these 12 months, in no period has there been a decrease in the MIMO rate by more than 150 basis points.
Therefore, the message conveyed by this decision of the Bank of Mozambique is that the operational framework of monetary policy is structured in such a way that interest rate upward movements are more flexible than downward movements, even if there is room for a further reduction in interest rates.
For example, during the first half of 2020, inflation was at a historical average of 3% and the medium-term outlook was for inflation stable, but the interest rate reduction did not go beyond 150 basis points, even though there was room for it.
However, the upward revision of inflation prospects for the medium term led the
Bank of Mozambique to drastically increase the monetary policy interest rate by 300 basis points.
This operational approach somewhat parallels the behavior of commercial banks that are more resilient to this operational approach somewhat resembles the behavior of commercial banks that are more resistant to interest rate decreases than increases, which ultimately penalizes the business sector, jeopardizing employment, capital formation and the economy in general. and the economy in general.
