The Bank of Mozambique on Dec. 22 lowered its key lending rate, or MIMO, by 150 basis points to 19.5%, citing a "significant" improvement in inflation expectations.
The central bank also slashed the interest rates on the standing lending facility and the standing deposit facility by 150 basis points each to 20.5% and 14.0%, respectively. It kept the reserve requirement ratio for liabilities in domestic and foreign currency at 14.0%.
Bank of Mozambique Governor Rogério Lucas Zandamela said the monetary policy committee found it appropriate to "prudently soften the tight monetary policy" against the backdrop of rapid inflation deceleration, moderate economic growth and announced measures dealing with public spending in 2018.
The central bank forecasts "stable" single-digit inflation for the end of 2018 after year-on-year inflation eased to 7.15% in November, down from roughly 27% in the year-ago period.
While short- and medium-term inflation prospects have improved, Zandamela noted "considerable" fiscal risks from the suspension of external aid to the state budget and the high level of public debt.
Additional risk factors related to extreme weather events, commodity price volatility and the political environment of neighboring countries could also shape inflation in 2018, Zandamela added.