Thursday, May 24, 2018

Angola unifies lending and basic rate, cuts reserve ratio

      Angola's central bank unified its marginal lending facility with its basic interest rate as the BNA rate, which it said would now reflect the effective cost of providing liquidity to commercial banks.
      As part of the change, the National Bank of Angola (BNA) lowered the rate on its marginal lending facility by 200 basis points to 18.00 percent, the existing basic interest rate.
      The BNA also lowered the ratio on mandatory reserves in national currency liabilities by 200 basis points to 19.0 percent while the rate on the liquidity absorption facility was kept at zero percent.
      The adoption of a unified rate is the latest move by the central bank to change its monetary operations following the arrival of Jose Massano as BNA governor in October last year.
       In January the BNA replaced its fixed exchange rate regime with a floating exchange rate regime with bands and began auctions to set a reference rate for the kwanza, which subsequently depreciated.
       Against the U.S. dollar, the kwacha has been dropping steadily since the new exchange rate regime began on Jan. 9, with the kwacha today trading at 234.7 today, down 29.3 percent.
       The BNA said the latest change was aimed at improving the effectiveness of its monetary policy instruments and thus contribute to macroeconomic stabilization and a sound financial system.
       In the future, the central bank's monetary policy committee will now meet bi-monthly, with the next meeting scheduled for July 20.
       Angola's inflation rate declined for the sixth consecutive month in April to 20.22 percent and was sharply down from just over 41 percent in December 2016.
       The monetary base, which became an operational variable of monetary policy in November last year, shrunk by 2.48 percent in April for a year-on-year increase of 10.11 percent, BNA said.
       Credit issued in the national currency grew by 0.88 percent in April from March for an annual increase of around 8.73 percent, the BNA said, while it sold a total of 596.33 million euros for accumulated sales this year of 2.842.13 billion euros.
       Gross International reserves declined to $US17.55 billion in April from $17.70 billion in March, enough to finance 7.31 months of imports.
        Earlier this week the International Monetary Fund (IMF) welcomed the reform program adopted by President Joao Lourenco, which took over from Jose Eduardo dos Santos last September, vowing to root out an endemic culture of corruption. Dos Santos had been in power almost 38 years.
        Lourenco's reform program envisages upfront fiscal consolidation, greater exchange rate flexibility, reducing public debt to 60 percent of Gross Domestic Product, improving the public debt profile, settling domestic payments arrears and enhancing anti-money laundering.
        The rise in crude oil prices is giving Angola an opportunity to address its macroeconomic imbalances after the plunge in oil prices in 2014 was met by fiscal tightening and foreign exchange restrictions. In the run-up to the August 2017 elections, the government then embarked on fiscal expansion and a pegged exchange rate that further eroded fiscal and external buffers.
        The IMF welcomed Angola's transition to greater exchange rate flexibility and the new monetary policy framework that is anchored on base money targeting consistent with an inflation objective.
        But it also stressed the need for the central bank to gradually phase out direct foreign exchange sales and to set a clear strategy and timetable for eliminating foreign exchange restrictions.
        The IMF forecast that Angola's economy would expand 2.2 percent this year, up from an estimated 1.0 percent last year, and 2.5 percent in 2019.
       Inflation is seen declining to an average of 27.8 percent this year from 2017's estimated 31.7 percent and then easing further to 17.1 percent in 2019.



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