Mozambique Nears End of Rate Cuts as Flooding Risks Mount

Mozambique’s central bank lowered its key interest rate by 25 basis points on Wednesday, January 28th, bringing it to 9.25%, marking its 13th consecutive cut. The regulator indicated that the end of its monetary easing cycle is near, due to emerging risks, including the severe flooding that recently struck several provinces of the country.

This decision comes in an economic context where Mozambique, whose nominal gross domestic product (GDP) is estimated at nearly $24.7 billion in 2025, sees its economy weakened by climate shocks and structural uncertainties.

Mozambique Cuts Key Rate Again but Signals Caution Amid Climate Damage and Economic Risks

The previous rate cut in Mozambique, initiated in November, was also 25 basis points. Since 2024, the central bank has significantly eased its monetary policy to support the economic recovery, reducing the key interest rate from 16.50% in January 2024 to 9.50% in November 2025, and then to its current level. This policy aims to stimulate lending and investment in an economy characterized by subdued inflation but rising risks.

Furthermore, flooding caused by heavy rains over the past 20 days has resulted in significant damage in several regions of central and southern Mozambique. In response to this situation, the Mozambican government estimated on January 27th that it needs at least $644 million to finance the repair and reconstruction of affected infrastructure, highlighting the extent of the impact of natural disasters on public finances.

On the inflation front, Mozambique saw a slowdown in price increases, with the annualized rate falling to 3.23% in December, compared to 4.38% in November, its lowest level in 13 months. This deceleration, combined with lower policy rates, reflects a relatively stable price environment, although one that remains vulnerable to external shocks and climate disruptions.

In parallel with these macroeconomic developments, Mozambique is in negotiations with the International Monetary Fund (IMF) for a new loan program. Once this agreement is reached, the authorities have indicated that the government could consider restructuring its debt, within a framework where the management of public obligations remains a central issue for economic stability.

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(Featured image by SHIU TANG via Unsplash)

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First published in Financial Afrik. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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