Mozambique’s central bank cut its benchmark interest rate by 25 basis points to 9.25 percent, extending the longest easing cycle in recent history, Governor Rogério Zandamela said in Maputo on Wednesday, according to Bloomberg.

The rate reduction comes as inflation is expected to remain in single digits in the medium term, but the governor signalled limited room for further cuts due to persistent economic and environmental risks. Severe flooding in the central and southern regions, coupled with trade tensions, have influenced the bank’s policy stance.

Since December, domestic public debt has risen by 11 billion meticais (about 173 million US dollars) to 485 billion meticais, reflecting government reliance on local debt markets. Zandamela said that investors’ reduced appetite for securities, partly due to delayed payments, is contributing to rigidity in interbank money market rates and dampening the intended impact of monetary policy.

“We wanted the rate to reflect in government bonds and prime rates, if the reduction is not impacting those, then it is time to end the Mimo reductions,” Zandamela said, Bloomberg reported.

The central bank’s move coincides with ongoing negotiations with the International Monetary Fund for a new funding package. Analysts note that any currency depreciation to meet IMF requirements could pose additional inflationary pressures, requiring a more balanced budget.

Mozambique’s economy has been battered by multiple shocks in recent years. Output fell to the lowest since 2020 following post-election unrest that stalled activity for months. An Islamic State-backed insurgency in the northeastern Cabo Delgado province has also delayed a $20 billion natural gas export project.

Flooding has affected large parts of the country, with authorities reporting at least 137 deaths since the rainy season began in October. Approximately 240,000 hectares (593,000 acres) of crops have been lost, key highways destroyed, and over 5,000 kilometres (3,100 miles) of roads rendered impassable, leaving cities and towns submerged.