Angola: Bank of Angola continues to loosen its belt in July
August 3, 2017
At its 31 July monetary policy meeting, the National Bank of Angola (Banco Nacional de Angola, BNA) decided to keep the Basic Reference Rate on hold again at a record high of 16.00% and to leave the Marginal Lending Facility untouched at 20.00%. However, the BNA opted to reduce the Seven-Day Liquidity Absorption Facility for the third meeting running by 50 basis points from 3.25% to 2.75%.
The BNA’s decision comes as inflation continues to fall further from December’s peak, with July’s figure marking the seventh consecutive monthly decline in inflation. The effects of fuel subsidy cuts, the substantially weaker kwanza and low interest rates until the middle of 2016 are working their way out of the system, and the tighter stance adopted by the Bank over the last 12 months is paying off. This gave the BNA some leeway to loosen its stance without stoking price pressures once more. On the demand side, the economy continues to look shaky, with the economic climate indicator remaining deep in negative territory in the first quarter of the year. In addition, prices for Cabinda oil, the country’s lifeblood, remain too low to jolt the economy into life. Reducing the Liquidity Absorption Facility should help boost credit growth, which dipped slightly in June, and increase domestic demand; in Q1 many companies highlighted restricted access to finance as a key factor restricting their growth.
The Bank’s communique contained no forward guidance, although with inflation set to remain elevated due in part to second round effects associated with poorly anchored expectations, the BNA is unlikely to be able to significantly cut its Basic Reference Rate in the short term. However, as price pressures ebb, 2018 should see a slight reduction in the Basic Reference Rate.
The next monetary policy meeting is scheduled for 31 August 2017.
Author: Oliver Reynolds, Economist