Banco Nacional de Angola Considers Lowering Benchmark Rate

As inflation decreases and after the country’s currency saw the highest rate of appreciation in decades, the central bank of Angola is considering lowering its benchmark rate.

Banco Nacional de Angola, Governor Jose de Lima Massano has said that they plan to boost foreign-exchange reserves to cover 10 months of imports from eight months.

The kwanza‘s 22% rise versus the dollar this year, which makes it the second-best performing currency in the world, allowed the Banco Nacional de Angola to maintain its benchmark rate at 20% for a sixth consecutive meeting in July. The central bank predicts that from 21.4% in July, inflation would drop to under 18% by year’s end.

As price increases speed in many nations around the world, Angola, Africa’s second-largest oil producer, will become an exception due to a reduction in borrowing rates. Inflation in the UK is projected to surpass 18% in 2019 for the first time in over 50 years, and Indonesia on Tuesday unexpectedly increased borrowing costs for the first time since 2018.

The next meeting of the monetary policy committee of the Angolan central bank is scheduled for September 26, according to JPMorgan Chase & Co. indices. At 2:09 PM in Luanda, the yield on the country’s eurobonds due in 2032 decreased by 34 basis points. The current 857 basis point premium that investors are willing to pay to hold Angola’s debt over US Treasury securities

Massano explained that Angola’s inflation may slow to less than 10% by the second half of next year, earlier than the central bank’s previous prediction of 2024. He adds that this will give the central bank more room to stimulate the economy, which is expected to expand 3% this year.

Joao Lourenco, the MPLA’s president and leader of the Popular Movement for the Liberation of Angola, is running for re-election. Adalberto Costa Junior, the leader of the National Union for the Total Liberation of Angola, or Unita, is putting up a strong fight against him.

Dealing with the debt load will be a significant task for the future president.

While Angola’s public liabilities are expected to decrease from 123.8% of its gross domestic product in 2020 to 56.5% in 2022, according to Fitch Ratings Inc., the country would need to spend nearly $5.5 billion annually to pay off its foreign debt over the three years leading up to 2025. This is due to the fact that, according to Fitch, the administration of Lourenco has re-profiled the bilateral debt owed to Chinese official lenders. The nation of southwest Africa owes China almost $19 billion.

This is Massano’s second time in charge of the central bank of Angola.

Massano has been credited with stabilising the exchange rate during his current term, which started in 2017, allowing the local currency to float freely, slowing inflation, and enhancing the reputation of Angola’s financial sector following a series of reforms with the International Monetary Fund.

The first term of Massano’s governorship of the central bank, from 2010 to 2015, was more challenging. At the time, Angola was dealing with a massive deficit as a result of the drop in oil prices. Five years later, Massano left Angola with record-high foreign exchange reserves and the lowest inflation rate in the country’s history.