Friday, July 12, 2024

January Prime Rate reduced to 23.50%

The prime rate for credit operations in Mozambique will fall in January to 23.50%, after six consecutive months of highs of 24.10%, announced the Mozambican Banking Association (AMB).

As part of the implementation of the Agreement on the Single Index for the Mozambican Banking System, the Mozambican Banking Association (AMB) announces the Single Index, the Cost Premium and the Prime Rate to come into force in January 2024.

Credit peaked at around 37.89pp, with the highest concentration and allocation of total volume in the General Trade (around 10.5pp), Transport Communication (around 10.2pp) and Manufacturing (around 10.1pp) sectors.

The prime rate had been falling since 2018, until it reached a low of 15.5% in February 2021, when the trend reversed and the rate began to rise until it reached 23.50% in April, and then 24.10% in July, which was maintained in all the following months.

In January 2024, the rate will return to the values of last April.
The increases in the prime rate have been associated with the increase in the monetary policy interest rate (MIMO rate, which influences the formula for calculating the prime rate) by the Bank of Mozambique (BdM), in order to control inflation.

In the same vein, the Mozambican central bank previously kept the MIMO rate at 17.25%, as well as the mandatory reserves required of commercial banks.

The creation of the ‘prime rate’ was agreed in 2017 between the BdM and AMB to eliminate the proliferation of reference rates on the cost of money. At the time, it was launched at 27.75%.

The aim is for all credit operations to be based on a single rate, “plus a margin (‘spread’), which will be added to or subtracted from the ‘prime rate’ according to the risk analysis” of each contract, the promoters explained.

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