Mozambique's central bank lowered its benchmark monetary policy rate, MIMO, by 100 basis points to 13.25 percent, saying inflation has slowed four months in a row and is expected to remain low and stable in the medium term.
It is Bank of Mozambique's (BM) first rate cut this year but the rate has now been lowered by 10 percentage points since April 2017 as inflation has steadily decelerated since topping 26 percent in November 2016 and the exchange rate of the metical has risen since hitting almost 80 to the U.S. dollar in October 2016.
BM also lowered its deposit rate by 100 basis points and the rate on its permanent lending facility to 10.25 percent and 16.25 percent, respectively. However, it left the reserve ratio of domestic currency deposits at 14.0 percent and foreign currency deposits at 36.0 percent.
BM said the rate cut reflected the improved outlook for inflation and the prospect of lower pressure on the exchange rate along with demand that remains below potential.
The metical was trading at 62.0 to the dollar today, up 4.5 percent from a low of 64.8 in late April but down 0.6 percent since the start of the year.
Mozambique was hit hard by Tropical Cyclones Idai and Kenneth in March and April, with the International Monetary Fund earlier this month forecasting economic growth would slow to 1.8 percent from 3.3 percent last year from the damage to infrastructure and productive capacity.
In April IMF approved $118 million in emergency assistance to Mozambique, with the death toll estimated of at least 1,000 from the two cyclones.
Mozambique's inflation rate eased to 2.42 percent in May from 3.27 percent in April but the IMF sees it rising to 8.5 percent by the end of the year.
