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UPDATE 1-Mozambique hikes key lending rate to 17.25 percent

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MAPUTO, July 21 (Reuters) - Mozambique’s central bank lifted its main lending rate by 300 basis points to 17.25 percent on Thursday due to soaring inflation and weakness in the currency caused by suspension of foreign aid by international donors.

Governor Ernesto Gove said he was concerned by the persistence of inflation, which rose 19.7 percent in June as a blistering drought in Southern Africa wilted crops, droving food prices higher and hitting economic growth.

“Mozambique started the year in an atypical way with floods and droughts in the central and northern region. We also have the suspension of foreign aid by the international partners,” Gove told a news conference.

Mozambique, one of the world’s poorest countries which has huge untapped gas reserves, has been thrown into economic turmoil by revelations of financial malfeasance.

The government’s admission in April of billions of dollars of secret borrowing hidden has hit cash inflows, with the World Bank delaying approval of development loans while the United States government is reviewing the $400 million it provides annually to the cash-strapped country.

Finance minister Adriano Maleiane said earlier this month economic growth was seen slowing to 4.5 percent from the initial forecasts of 7 percent. (Reporting by Manuel Mucari; Writing by Nqobile Dludla; Editing by Ed Cropley)

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