Mozambique's central bank cut its benchmark interest rate for the second time this year and for the 13th time in just over three years, saying risks and uncertainties in the economy have worsened "significantly" due to military instability in the northern part of the country along with the impact of the Covid-19 pandemic.

The Bank of Mozambique (BM) cut its monetary policy rate (MIMO) by 100 basis points to 10.25 percent and has now lowered it by 250 point this year.

Since April 2017, when BM began easing its policy stance, the rate has been cut 11.50 percentage points.

BM forecast inflation will remain low through this year and next year due to a greater contraction of domestic demand, the impact of Value-Added-Tax exemption, a fall in the prices of some basic goods and services, and expectations of economic agents.

It added a May survey of inflation expectations pointed to inflation below 5.0 percent for 2020 and 2021. Mozambique's government has set a medium-term inflation objective of 5-6 percent.

Mozambique's inflation rate eased to 3.02 percent in May from 3.32 percent in April while its economy grew 1.68 percent year-on-year in the first quarter of this year, up from 1.51 percent in the previous quarter.