Banco de Moçambique on Feb. 26 lowered its key lending rate, or MIMO rate, by 150 basis points to 18.0%, citing a continued slowdown in inflation.
The Mozambique central bank also slashed the standing lending facility and standing deposit facility both by 150 basis points to 19.0% and 12.5%, respectively. The rates are effective immediately.
The bank raised the reserve requirement ratio for foreign currency liabilities by 800 basis points to 22.0%, effective March 7, but maintained the reserve requirement ratio for domestic currency liabilities at 14.0%.
"The continuous improvement of the inflation indicator and the medium term inflation expectation justifies the further reduction of interest rates," said Governor Rogério Lucas Zandamela in a release.
Mozambique's aggregate consumer price index decelerated for the ninth straight month to 3.84% in January, down from 20.56% in the year-ago period. The bank expects inflation to stay in the single digits when 2018 ends.
But Zandamela warned that risks to the inflation outlook, mainly from heavy rainfall that led to floods early this year and the volatility of commodity prices and the U.S. dollar, will require the bank to act cautiously.
Meanwhile, the governor said the country's GDP could further improve in first quarter of 2018 from the 3.7% rise in the fourth quarter of 2017, pointing to a recovery in the economic climate index, a leading indicator of economic activity.