Angola: Central Bank holds policy rate steady in May, merges interest rates
May 24, 2018
At its monetary policy meeting held on 24 May, the National Bank of Angola (Banco Nacional de Angola, BNA) left the main interest rate unchanged at 18.00%. Nevertheless, the BNA slashed the permanent lending interest rate by 200 percentage points to 18.00%, thus unifying both rates. As a result, the Bank stated that its key policy rate, also known as the BNA rate, “is now reflecting the effective cost of providing liquidity to commercial banks”. Meanwhile, the reserve ratio coefficient in national currency was cut from 21.00% to 19.00% during the meeting, whereas the interest rate on liquidity absorption facilities was kept stable at 0.00%.
The Bank’s stance with respect to its key policy rate was expected given the sustained double-digit inflation in the country. Despite easing in recent months, inflation in the province of Luanda remains high, coming in at 21.3% in April, down from the previous month’s 22.3%, and marking the lowest reading in over two years. Such high inflationary pressures over the last two years have impeded the BNA from lowering the key policy rate. On the other hand, additional tightening could undermine Angola’s economic recovery, with activity in the country’s non-oil sector most likely to be hit.
The Bank’s communiqué was devoid of any forward guidance; however, monetary conditions in Angola should remain tight for the foreseeable future given the high level of inflation. The effectiveness of the monetary policy instruments and the corresponding rates will remain under continuous evaluation from the Bank, and future rate decisions will depend on incoming data from the real and monetary sectors. With the economic recovery likely to get further underway in the medium term the Bank will have an opportunity to cut rates more notably next year if inflation moderates sufficiently.
The Monetary Policy Committee will meet every two months from now on, with the next meeting scheduled for 20 July.
Author: Almanas Stanapedis, Economist