Mozambique: Rate cut decision driven by single-digit inflation outlook, FX stability – central bank

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Mozambique: Rate cut decision driven by single-digit inflation outlook, FX stability – central bank

7:18 CAT | 01 Oct 2025

File photo: Banco de Moçambique

The Monetary Policy Committee of the Bank of Mozambique (CPMO), meeting in Maputo on Monday, reduced the bank’s benchmark interest rate, the MIMO rate, by 50 base points, from 10.25 per cent to 9.75 per cent.

According to the governor of the Central Bank, Rogério Zandamela, the measure is essentially due to the maintenance of single-digit inflation prospects in the medium term, reflecting, in part, the stability of the exchange rate and the favourable trend in international commodity prices, despite the prevalence, at domestic level, of high risks and uncertainties associated with the bank’s projections.

“In August 2025, the annual inflation rate stood at 4.8 per cent, after four per cent in July. Core inflation, which excludes fruits and vegetables and goods with regulated prices, increased slightly”, he said.

He explained that the continued single-digit inflation outlook in the medium term essentially reflects the monetary policy stance, the stability of the Metical, and the downward trend in international commodity prices.

For the medium term, excluding Liquefied Natural Gas (LNG), moderate economic growth is expected. However, in the second quarter of 2025, gross domestic product (GDP) contracted by 1.7 per cent, after 4.9 per cent in the previous quarter.

“Gradual recovery in economic activity is expected in the medium term, excluding LNG production, partly favoured by the prospects for project implementation in strategic areas”, Zandamela said.

But he warned that “pressure on domestic public debt is continuing to increase, impacting the normal functioning of the government bond market. Domestic debt, excluding loan and lease agreements and outstanding liabilities, stands at 454.4 billion meticais (approximately 7.1 US billion dollars at the current exchange rate), representing an increase of 38.8 US billion meticais compared with December 2024.

He also warned that the risks and uncertainties associated with the inflation projections remain high.

“The impacts of the worsening fiscal situation, amid growing challenges in mobilizing financial resources for the State Budget, climate shocks, and the slow pace of restoring productive capacity and the supply of goods and services, stand out as likely factors for rising inflation in the medium term”, Zandamela said.

He promised that the central bank will continue “to normalise the MIMO rate in the medium term” – by which he clearly meant that further interest rate cuts can be expected.

Source: AIM