Angola Sees Downward Trend Resuming for Inflation and Rates

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Angola’s central bank will have room to boost the economy with lower interest rates once the oil-producing nation’s inflation starts slowing again this year, said Economic Coordination Minister Manuel Nunes Junior.

The National Bank of Angola has left its key rate unchanged at 15.5% for almost two years even as some African central banks eased policy in 2020 to shore up their economies against the negative impact of the Covid-19 pandemic.

“In 2020, the inflation rate’s clear downward trajectory was interrupted by the impact of Covid-19,” Nunes Junior said in a written response to questions. “This year we will resume the downward path of inflation and create the economic fundamentals so that nominal interest rates can be adjusted downwards.”

Instead of using monetary policy, the central bank has tried to temper price growth by adjusting the amount of kwanza in circulation and keeps that in line with inflation targets. That’s because a lot of the price pressures in Angola came from rising import costs following a depreciation of the kwanza, rather than demand.

“The problem with interest rates in Angola has to do with the structure of the economy, which is still very dependent on imports while relying on one single product for exports,” said Nunes Junior, referring to oil, which accounts for about 90% of Angola’s export revenue.

Economic Structure

Lowering borrowing costs in a context of high inflation would lead to negative real interest rates and cause serious distortions in the economy, especially in the banking system, he said.

Angola is now in a much better position to control price growth, he said. While it’s still high at 24.8%, the national inflation rate has come down from December. The rate was at more than 40% late in 2016 and dropped below 20% in 2019, until the currency started weakening.

Angola’s economy is set to expand about 1% this year after five straight years of contraction, thanks to growth in sectors such as farming and construction amid reforms to diversify the economy, said Nunes Junior. A rebound in crude prices has also helped to stabilize the country’s total reserves at about $15 billion, equivalent to 12 months of imports.

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

©2021 Bloomberg L.P.

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