Angola Set to Keep Policy Rate at Record High for Rest of 2021

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Angola’s central bank governor expects to keep the benchmark interest rate unchanged for the rest of the year after raising it to a record high earlier this month to curb inflation.

Maintaining the rate until the end of the year will help ensure “greater stability” in the economy, Jose de Lima Massano said in an interview in Luanda on Monday. The central bank will only consider altering borrowing costs if there is a significant change in the trajectory of inflation, he said.

The central bank unexpectedly increased the key rate to 20% from 15.5% at a monetary policy committee meeting on July 2. The meeting was moved forward by almost four weeks after data showed that its inflation target of 19.5% for the end of the year may be at risk from additional price pressures.

Previously policy makers focused on money supply rather than lending rates to try to curb inflation. That’s because many of the price pressures in Angola came from rising import costs following a depreciation of the kwanza, rather than demand.

“The pace of price growth is faster this year than what we saw in 2020,” said Massano. “This is a different context.”

Inflation in sub-Saharan Africa’s second-largest oil producer accelerated the most in at least three years in June to 25.3%.

The rate hike and rising oil prices should help ease the pressure on the exchange rate, Boingotlo Gasealahwe of Bloomberg Economics said in a July 2 note. “This should help to curb inflation given the biggest driver is higher pass-through from a weaker currency.”

The kwanza has gained just over 3% against the dollar since October, when it reached a record low.

Economic Rebound

Angola’s economy is set to stagnate this year after five straight years of contraction and return to growth in 2022, said Massano.

The central bank forecasts growth of 2.36% next year and expansion of 3% to 4% from 2023, the governor said.

Despite no growth being expected for this year, the economy is in better shape than it was in 2020, strengthened by an improvement in the fiscal and external accounts, which have translated into more resources for economic activity, he said.

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