Angola: Central Bank unexpectedly hikes key interest rate to record high in July
July 2, 2021
At its 2 July meeting, the Monetary Policy Committee of the National Bank of Angola hiked the basic reference rate to a record high of 20.00% from 15.50%. It also raised the interest rate of the permanent lending facility—previously indexed to the treasury bills market—to 25.00%, and the interest rate of the standing facility for the absorption of liquidity to 15.00% from 12.00%. Meanwhile, it left the coefficient of the mandatory reserves in foreign currency unchanged at 22.00%. The meeting was originally scheduled to take place on 29 July, but the Committee brought it forward because of the recent evolution of inflation.
The decision to hike rates was largely due to higher-than-expected and persistently elevated inflation, which has not eased despite the measures taken in Q1 to cushion the supply shock. Consequently, the move aims to tame high inflation, as the Bank noted current inflationary pressures risk the 19.5% inflation target for the end of 2021 being missed. With this policy shift, the Bank revealed it is more concerned about high inflation than maintaining the exchange rate stability.
Looking ahead, the Bank did not provide forward guidance in its press release. However, the Central Bank governor, José de Lima Massano, said the Bank intends to keep the key interest rate unchanged for the remainder of the year, to ensure stability. However, it will consider a change of policy if there was to be a significant change in the trajectory of inflation. Our panelists are currently assessing the Bank’s surprise move.
The next monetary policy meeting is scheduled for 27 September.
Author: Marta Casanovas , Junior Economist