Mozambique’s central bank cut its key lending rate by 100 basis points to 12.5 per cent,

The apex bank says it was in line with meeting the southern African country’s inflation and economic targets for this year.

In a statement, the Bank of Mozambique said its monetary policy committee had also decided to cut its reserves requirement for local banks by 25 basis points to eight per cent.

The cut will take effect from July 7.

“The Monetary Policy Committee verified that adequate conditions exist for maintaining an accommodating monetary policy position, seeking greater expansion of bank financing for the private sector,” it said.

The bank also noted the worsening outlook for the world economy and uncertainty over the resolution of the euro zone sovereign debt crisis.

The central bank last month cut its 2012 year-end inflation forecast to four per cent.

The move is compared to 5.6 per cent forecast in January, saying a strong currency and elevated interest rates would tame price pressures.

The metical was the best performing currency against the dollar globally in 2011.

It has contributed to inflation braking from double digits last year to 2.28 per cent in May because of its impact on the price of imports.

In spite of a mining investment boom, war-scarred Mozambique relies heavily on aid from foreign donors.

The donors said last week they would cut their support to 606 million dollars next year from 688 million dollars this year due to pressure on their own budgets.

Domestic growth is forecast at 7.5 per cent in 2012 compared with 7.1 per cent last year.