Regulatory Alerts2021-08-04
Circular No. 05/EMO/2021, of August 4 - Calculation Formulas for Exchange and Forward Interest Rates for Over-the-Counter (OTC) Financial Derivatives Not Cleared by a Central Counterparty
The Bank of Mozambique issued Circular No. 05/EMO/2021 to mandate standardized calculation formulas for exchange and forward interest rates for uncollateralized over-the-counter (OTC) financial derivatives, specifically FX Forward, FX Swap, Cross-currency Swap, and Forward Rate Agreement (FRA). The regulation requires financial counterparties to apply prescribed mathematical models for pricing these instruments, strictly linking external currency rates to internationally published data and defining the Metical rate via a single index with a capped risk premium. It formally repeals Circular No. 02/EMO/2021, safeguards rates for transactions executed prior to its August 5, 2021 effective date, and centralizes interpretative guidance under the Bank's Markets and Reserve Management Department.