World-Beating Currency Draws Ire of Mozambique Farm Minister

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Mozambique’s world-beating currency has left some investors confused after a March terror attack threw its economic prospects into doubt. Now, even the country’s agriculture minister has implied the metical’s 34% appreciation against the dollar this year is overdone.

A strong Mozambican currency is always good, but it has to be because of strong fundamentals and not because of administrative measures, state-owned Radio Mocambique cited Celso Correia as saying.

The minister, who’s one of President Filipe Nyusi’s closest confidants and his election campaign manager, wants the monetary and fiscal authorities to respond to the need to promote agricultural exports, he said. That may suggest he wants the central bank to reverse a surprise 300 basis-point hike in its benchmark interest rate in January -- the first globally this year.

Inflation accelerated to 5.76% year-on-year in March, but well below the double-digit levels that Banco de Mocambique Governor Rogerio Zandamela had previously feared.

World-Beating Currency Draws Ire of Mozambique Farm Minister

Part of the currency’s strength may be linked to the resumption of some mining exports from Mozambique.

Vale SA, the Brazilian mining giant, was due to complete maintenance and resume production in the first quarter at its coal mines in central Mozambique. Coal is the nation’s biggest export after aluminum, and Vale produces nearly all of it. Gemfields Group Ltd. last week said it sold nearly $60 million worth of rubies from its Mozambique operations, in the first auctions in over a year.

The metical’s rally could also be down to the central bank selling dollars, amplified by imports slowing as security concerns froze construction work on a $20 billion natural-gas export project that Total SE is building in the far north of the country, according to Gerrit van Rooyen, an economist at NKC African Economics. Last month, Islamic State-linked insurgents attacked the closest major town to the site of what is Africa’s biggest private investment yet, where many of its sub-contractors and suppliers were based.

Much of Mozambique’s economic fortunes rest on the project.

“Although the currency’s rally might still have some room to run as mining production is ramped up to pre-pandemic levels, we think the metical will surrender some gains by the end of the year,” Van Rooyen said in an emailed note. “Reduced foreign-exchange intervention as inflation concerns ease, continued dollar strength, and increased import requirements should curb the appreciation.”

Correia’s remarks will be heard by the central bank, which is due to hold its next monetary policy committee meeting on May 19. It maintained its policy rate at 13.25% on March 17. The Banco de Mocambique didn’t immediately respond to an email seeking comment.

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