"The private sector has exerted strong pressure on the government to make access to credit cheaper, and as a result we are now beginning to see a positive sign from the Bank of Mozambique in deciding to lower its interest rates", Abdula told AIM.
He hoped that the commercial banks would follow the lead given by the central bank, and reduce the interest rates they charge on their loans, He believed this would be beneficial for investment in the productive sector.
Three weeks ago the Board of Directors of the Bank of Mozambique announced significant cuts in the interest rates used for operations on the Interbank Money Market. It cut interest charged in the Permanent Lending Facility from 17.5 to 15.5 percent. The interest rate in the Standing Deposit Facility fell from 14 to 10.5 per cent.
At the time, the central bank stressed that these changes "make room for the commercial banks to reduce the interest they charge their clients".
While this was a welcome first step, the CTA wants further moves to make credit cheaper and Mozambican businesses more competitive. Abdula thought that the impending southern African Free Trade Area (which comes into effect in 2008) made this all the more imperative.
"Mozambique has natural resources which our businesses cannot exploit because of their lack of know-how and of capital, because money is still very expensive and cannot be invested in the productive sector in an enticing fashion", said Abdula.
He argued that the reason businesses tend to go for the rapid turnover of trading operations, rather than investing in agriculture or industry, is precisely the high rates of interest charged by the banks.
"Interest should be charged at rates that make it viable to invest in production in the medium to long term", Abdula urged.
Banks used to justify high interest rates with claims that inflation too was high, and that the economy was unpredictable.
But in recent years Mozambique has experienced both political and economic stability, and the annual inflation rate has fallen from around 150 per cent in 1987 (the first year of structural adjustment policies) to under 10 per cent in 2006.
The CTA is now undertaking its own study of the Mozambican financial sector which it intends to deliver to the government, to back up its calls for cheaper credit.
SOURCE: AIM
