Banking reserves in Mozambique contracted 1.3% in September to approximately $4.63 billion, marking the fourth consecutive monthly decline, according to data published by the Bank of Mozambique (BdM). Since May, the cumulative reduction stands at 4.2%.

According to the central bank's October Monthly Statistical Information Summary, reserves fell by $59.8 million compared with August, when they stood at $4.69 billion.

The downward trajectory began in June, after banking reserves peaked at $4.83 billion in May. The indicator retreated to $4.74 billion in June, $4.72 billion in July, and $4.69 billion in August before reaching the September level.

Despite successive declines, banking reserves remain approximately 25.1% above their April level, when they totalled around $3.7 billion — before the central bank raised the mandatory reserve requirement ratio on local-currency liabilities.

The sharp increase in May followed the BdM's decision to raise the mandatory reserve coefficient that commercial banks must hold against deposits and other covered local-currency liabilities from 29% to 39%. In practice, the measure required financial institutions to deposit a larger share of those resources at the central bank, with the aim of absorbing excess liquidity in the financial system and curbing inflationary pressures.

Banking reserves are a component of the monetary base and represent the funds that credit institutions hold at the central bank. Their evolution provides a gauge of liquidity conditions in the financial system, although a decline in the indicator does not necessarily imply a contraction in lending to the economy.

At its late-September meeting, the BdM's Monetary Policy Committee (CPMO) kept mandatory reserve coefficients unchanged: 39% for local-currency liabilities and 29.5% for foreign-currency liabilities.

In late October, however, the central bank introduced a special framework allowing banks to use a portion of resources subject to mandatory reserves to stimulate lending to companies and productive sectors.

The mechanism, which came into force on 28 October, allows banks to deduct from their local-currency mandatory reserves an amount equivalent to 110% of the outstanding balance of eligible investment loans and 100% of the balance of covered working-capital loans.

The decline in banking reserves observed between June and September predates the entry into force of this mechanism and therefore cannot be directly linked to the new lending measures.

The initiative seeks to encourage the financing of activities related to import substitution, export diversification, tourism promotion, and the development of domestic supply chains, with priority given to companies that use raw materials, products, and services of Mozambican origin.

The framework gives concrete form to an intention announced in September by BdM Governor Felisberto Navalha, who advocated mobilising a portion of the resources held at the central bank to support economic activity.

"Since they are sitting idle and the economy currently needs some oxygen, we want to make these resources available for commercial banks to intermediate their channelling into the productive sector of our economy, prioritising above all productive units or companies oriented towards the promotion of exports," the Governor said.

Under the new rules, banks wishing to benefit from the mechanism must extend, in each semester, at least 50 new eligible loans amounting to a minimum of 6% of the average mandatory reserves constituted over the previous six periods.

Covered loans are subject to a cap on borrowing costs: investment loans may not exceed the monetary policy interest rate (MIMO rate), currently set at 9.25%, while working-capital loans are capped at the MIMO rate plus 150 basis points.

The framework remains in force for 18 months, in a context where mandatory reserves continue to absorb a significant share of banking sector liquidity.