Angola Monetary Policy March 2020

Angola: Central Bank keeps key interest rate stable in March despite worsening economic backdrop

At its 27 March meeting, the Monetary Policy Committee (MPC) of the National Bank of Angola (BNA) held its key policy rate unchanged at 15.50%. The decision came against the backdrop of a deteriorating economic environment due to the Covid-19 pandemic, and a rapidly depreciating cedi. That said, the BNA reduced the interest rate for the seven-day liquidity absorption facility from 10.00% to 7.00%, while maintaining the interest rate for the overnight liquidity absorption facility at 0.00%.

The BNA stood pat in March as a rapidly depreciating kwanza and intensifying inflation prevented the Bank from easing its monetary policy stance to support the economy amid a deepening recession. The worsening economic backdrop due to the fallout from the Covid-19 pandemic prompted fears of a deepening recession this year, thus putting pressure on the BNA to loosen its policy stance in order to support economic activity. However, the oil price crash has also triggered a sharp kwanza depreciation due to plummeting U.S. dollar inflows into the oil-dependent economy, in turn fueling inflationary pressures in the country and forcing the Bank to hold rates.

Looking ahead, the Central Bank’s policy outlook appears increasingly uncertain. Amid unprecedent volatility in the global oil markets, the BNA may need to intervene in foreign exchange markets in the coming months if the kwanza’s depreciation spirals out of control, not least because of the currency’s pass-through effect on inflation. On top of that, the oil sector downturn is set to spread into other sectors of the economy, suggesting that authorities will likely be required to unleash all fiscal and monetary policy tools at hand in order to weather the economic downturn.

The next Monetary Policy Committee meeting is scheduled for 27 May.

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