Mozambique's central bank lowered its monetary policy rate (MIMO) by a further 150 basis points to 18.0 percent, citing the continuing decline of inflation and its forecasts that inflation will be in single digits by the end of this year.
The Bank of Mozambique (BM) has now cut its MIMO rate, which replaced the standing facility rate as its signal rate in April 2017, by 375 basis points. The last rate cut was in December.
BM said its monetary policy committee (CPMO) would continue to monitor economic and financial data and "may take the necessary corrective action" before its next meeting on April 30.
BM also cut the rates on its permanent lending facility (CSF) and the deposit facility (FPD) by 150 basis points to 19.0 percent and 12.50 percent, respectively.
But the rate on banks' foreign currency liabilities with BM was raised by a sharp 800 basis points to 22.0 percent, with effect from the March 7 period, to help dampen volatility in the exchange rate of Mozambique's metical.
The reserve ratio on banks' domestic liabilities was retained at 14.0 percent.
Mozambique's inflation rate fell to 3.84 percent in January for the ninth consecutive monthly decline in inflation, and down from 20.56 percent in January 2017.
BM expects inflation to remain in single digits by the end of 2018 but added the risks remain high, including uncertainties from flooding in January that led to 11 deaths in the northern part of Mozambique. Last week heavy rains also triggered the collapse of a large garbage mound in the outskirts of the capital of Maputo, leading to the death of at least 17 people.
Other risks to the inflation outlook stem from public debt, the volatility of commodity prices and exchange rates. Public debt rose to 104.7 billion metical in February from 98.5 billion in December.
The metical has weakened since mid-January, with CPMO attributing this to the combined effect of volatility in major currencies along with a shift to a greater openness in the regulation of capital.
On Jan. 16 the U.S. dollar was quoted at 58.92 to the metical but this rate fell to 61.39 by Feb. 23, a drop of 4 percent.
Mozambique's economy "continues to be moderate," BM said, adding Gross Domestic Product grew by 3.7 percent in the fourth quarter of 2017, up from 2.9 percent in the third, with the economic climate index showing a recovery in the fourth quarter.
BM has forecast 4.7 percent growth in 2017, up from 3.3 percent in 2016.
Foreign demand is continuing the help dampen the impact of slower domestic demand with rising exports helping narrow Mozambique's 2017 current account deficit by US$1.367 billion from 2016.
Mozambique's international reserves dropped by US$96.3 million by mid-February, mainly due to BM's sale of $87.8 million in the interbank market, most of which was to settle foreign debt, while purchases amount to $6.2 million.
The reserves amounted to $3.188 billion, enough for 7.2 months of imports, excluding large-scale transactions.
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