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Monetary tightening will not solve Mozambique’s problems

I have an op-ed over at Zitamar News.

Opinion: Tighter monetary policy can’t change the fact that Mozambique has become poorer

Mozambique is facing the same situation as many other low-income commodity-exporting countries – the price of its main exports have declined sharply in the past two years. In the case of Mozambique, aluminium in particular.

By definition that means that the country is poorer than it was two years ago. Mozambique has also become poorer due to the suspension of some foreign aid programs and higher food prices due to drought.

There is no way around it and the central bank – Banco De Moçambique – can do little about it as these are all negative supply shocks. However, it is nonetheless facing a dilemma.

As terms-of-trade worsen (export prices drop relative to import prices), Mozambique has two options: either it can accept that this will cause the value of the metical to fall, which in turn pushes inflation up and thereby reduces real incomes to reflect that Mozambique has become poorer – or it can fight the drop in the metical by tightening monetary conditions. This is what it did yesterday when it hiked its key policy rate by 300bp to 17.25%, and tightened reserve requirements.

Read the rest here.


 

If you want to hear me speak about these topics or other related topics don’t hesitate to contact my speaker agency Specialist Speakers – e-mail: daniel@specialistspeakers.com

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