Twin rate cuts set Mozambique apart as African currencies rally

Mozambique doubles down on growth with Africa’s first dual benchmark rate cuts in 2024 as currencies across the continent score gains against the greenback.

SPECIAL REPORT | BIRD AGENCY | Mozambique’s central bank has decisively cut its benchmark lending rate to 15.75% from 16.5%, setting a precedent as the first African country to slash rates twice in 2024.

The move highlights Maputo’s aggressive push for economic growth amid a wider trend of cooling inflation and currency stability against the US dollar across Africa.

Rate cuts in the southeastern African nation, prompted by near-four-year low consumer inflation, aim to stimulate economic activity through household spending.

The steady Mozambican metical against the dollar since 2021 solidifies the central bank, Banco de Moçambique’s move, balancing the rate cuts without igniting inflation or destabilising the currency.

Mozambique’s fiscal manoeuvre and stability reflect a larger pattern across the continent. Both Kenya and Nigeria are witnessing their currencies gain ground against the greenback, offering their economies some respite.

In Kenya, commercial banks have recently quoted the shilling at a high of Sh132.00 to the US dollar, a significant recovery from Sh161.00 at the year’s start.

Similarly, Nigeria’s naira is experiencing a resurgence, trading at N1,300 against the dollar on the eve of Easter celebrations, rebounding from a historic low of N1,851 per dollar in February.

In Mozambique, the burgeoning LNG sector, kick-started, adds to the country’s growth prospects. However, insurgencies pose risks to major projects.

Despite challenges, its economy grows by 5.4% in Q4 of 2023, showcasing resilience and growth beyond its LNG sector.

TotalEnergies aims to restart its US$20 billion Mozambique LNG project, halted due to Islamist insurgencies in Cabo Delgado province, leading to a force majeure declaration in April 2021 that still stands.

Banco’s recent rate cut, however, aims to counteract these challenges, ensuring continued economic progress.

Mozambique, with its long Indian Ocean coastline, is dotted with popular beaches like Tofo, as well as offshore marine parks, also anticipates stellar earnings from tourism.

Efforts to stabilise the economy and ensure security are likely to enhance Mozambique’s appeal as a premier tourism destination, further diversifying its income sources and strengthening its economic resilience.

Mozambique is also tweaking its visa process to lure in more visitors.

Its complex visa process once deterred tourists and business visitors, affecting its regional and global competitiveness.

However, significant improvements began in December 2022 with the launch of a streamlined e-visa platform by the Mozambican Government.

Further easing occurred in March 2023, introducing visa-free entry for citizens of 29 countries, including the US, for tourism and business. Now, travellers can use the e-visa platform before their trip and pay a small fee of MZN650 (about US$10).

Furthermore, the regional economic landscape is witnessing a pivotal shift, with African nations increasingly adopting innovative monetary policies and reforms to navigate the complexities of global finance and trade.

Mozambique is now at the forefront of Africa’s money policy manoeuvre, with the continent’s economic landscape witnessing a pivotal transformation.

Its collective progress towards stronger currencies and thoughtful monetary strategies provides a brighter economic outlook for Africa.

Central bank governors across the continent will likely study Mozambique’s approach closely, seeking to replicate its successes in their jurisdictions.

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SOURCE; Seth Onyango, bird story agency