The Ethiopian central bank has halved interest rates to 3%, due to plunging deflation, weakening trade and investment and the global economic slowdown.

An agricultural glut has caused food prices, a key inflation indicator, to fall by 22.1% in the last year.

Agriculture is the backbone of the national economy and about 85% of the population earn their living from the land, mainly as subsistence farmers.

The cut, which took effect on 4 March, is the sixth rate adjustment since the country adopted a liberalised economic policy in 1992.

Unfortunate harvest

Bumper crops and falling global prices, especially for coffee, have pushed down incomes in the agricultural sector.

World prices for coffee, which account for more than 60% of Ethiopia's foreign currency earnings, have fallen 44%, adversely affecting coffee producers and traders, said the governor of the National Bank of Ethiopia Teklewold Atnafu.

More than 15 million people - about 25% of the population - derive their livelihood from the coffee sector.

Mr Teklewold does not expect the rate cut to result in a fall in domestic savings.

"Given the current negative 7.3% inflation rate, depositors will still be profitable even after the revision of the interest rate down to three percent," he said.