Mozambique: Apex Bank announces surge in interest rates

Oct 25, 2016

The hike in interest rates will make cost of borrowing high for SMEs

A surge in the benchmark interest rates has been announced by the Bank of Mozambique in a statement issued by the Bank's Monetary Policy Committee on Friday, with immediate effect. According to the statement, the Standing Lending Facility will increase by 600 base points, from 17.25 to 23.25 per cent, the highest charged after it declined to 7.5 per cent in 2014. This development is a measure to reduce inflation rate and excess liquidity. As of September 2016, inflation rate stood at 24.9 per cent, and it has been projected to rise to 26.9 per cent in October 2016. Currently, 98.6 % of Mozambican firms are composed of SMEs which provide employment and stimulate innovation; however, only 5 % of the SMEs are financed through banking institutions while a significant number of the SMEs finance projects through their own funds, or through family and friends due to high interest rates, lack of collateral and other constraints. As commercial banks are expected to follow the latest rise to 23.25 percent; this will make it more difficult for SMEs to thrive as cost of borrowing will be high.