Mozambique’s commercial banks have seen their mandatory reserves held at the central bank soar to a new all-time high, sparking concerns about the impact on the economy. As of July, these reserves reached an astonishing 258.224 billion meticais (€3.634 billion), surpassing the previous record set just a month earlier.
The Bank of Mozambique has been steadily increasing the reserve ratio for commercial banks since early 2023, citing the need to absorb excess liquidity and curb inflationary pressures. While the central bank argues that these measures are necessary to maintain financial stability, critics contend that they are stifling economic growth and making it more difficult for businesses to access credit.
The Confederation of Economic Associations of Mozambique (CTA) has been vocal in its opposition to the high reserve ratios. According to the CTA, the increased costs associated with holding reserves are making it more expensive for businesses to obtain financing, particularly for small and medium-sized enterprises. This, in turn, is hindering investment and economic activity.
The International Monetary Fund (IMF) has also weighed in on the issue, urging the Bank of Mozambique to reduce the reserve ratios. The IMF argues that these high levels are not necessary to absorb excess liquidity and could be hindering the economy.
Despite calls from businesses and the IMF, the Bank of Mozambique has maintained the high reserve ratios, citing the need to ensure financial stability. However, the decision has led to growing concerns about its impact on the economy, particularly in light of the ongoing shortage of foreign currency.
Businesspeople in Mozambique have reported difficulties in making payments abroad due to a lack of foreign currency in the banking system. This has led to delays in payments, fines, and drops in invoicing. The CTA estimates that unmet needs for imports or payments abroad already amount to $400 million (€358 million) in 2024.
The high reserve ratios are also exacerbating the shortage of foreign currency. By tying up a significant portion of banks’ resources, the central bank is limiting their ability to purchase foreign currency on the market. This, in turn, is driving up the cost of foreign exchange and making it more difficult for businesses to meet their import obligations.
As the Bank of Mozambique prepares for its next Monetary Policy Committee meeting on September 30, there is growing anticipation that it will address the concerns raised by businesses and the IMF. Whether the central bank will opt to reduce the reserve ratios remains to be seen, but the decision could have significant implications for the Mozambican economy.
