Monetary policy committee lowers key rate to 13.5% from 14.25%. Annual inflation slowed to 2.8% in August from 3% in July.
Mozambique remained the only African central bank this year to reduce borrowing costs at each of its rate-setting meetings and signalled more easing to come.
The Banco de Moçambique on Monday lowered its benchmark rate, known by its Portuguese acronym Mimo, to 13.5% from 14.25%, Governor Rogerio Zandamela said, matching the scale of its four prior cuts in 2024.
“The assessment of risks and uncertainties associated with inflation projections remains favorable,” Zandamela said. Factors that may help contain inflation in the medium term include the stability of the metical and commodity prices on the international market.
A stable currency helped cool annual inflation to 2.8% in August from 3% a month earlier, yet the government’s heavy reliance on local debt markets to fund the budget deficit has kept borrowing costs high.
The monetary policy committee will continue “normalizing the Mimo rate in the medium term,” Zandamela said. “The pace and magnitude will continue to depend on the inflation outlook, as well as the assessment of risks and uncertainties underlying medium-term projections.”
The rate reduction will offer some reprieve for borrowers that have been paying among the highest inflation-adjusted interest rate globally, just as the southeast African nation heads to general elections Oct. 9.
It could also further boost economic growth that accelerated to an annual 4.5% in the second quarter.
— With assistance from Ana Monteiro