Friday, November 29, 2019

Angola holds rate, shrinks footprint in FX market further

    Angola's central bank left its key interest rates unchanged, saying disinflation is continuing despite the implementation of value-added-tax (VAT) and the liberalization of the exchange rate in October.
     The National Bank of Angola (BNA), which has cut its benchmark BNA rate by 100 points this year to 15.50 percent, added its monetary policy stance will remain restrictive through finer liquidity management by open market operations in order to consolidate the floating exchange rate regime and to ensure greater price stability.
    In October BNA's monetary policy committee raised the reserve requirement for kwanza deposits by 500 basis points to 22 percent and set a 10.0 percent interest rate for a new 7-day facility as it completed a transition to a market-determined exchange rate for the kwanza begun in January 2018.
    This included scrapping a 2.0 percent trading band margin that had limited the kwanza's move during currency auctions.
    After taking over the reins of BNA in October 2017 - part of Angola President Joao Laurenco's move to clean up the country's image as corrupt -  Governor Jose Massano began a major overhaul of BNA in January 2018, including ditching a fixed exchange rate regime and adopting the monetary base as a operational variable to better control liquidity.
    Continuing BNA's policy of normalizing and reducing its intervention in the foreign exchange market, the bank today said it would stop purchasing foreign currency from oil companies as of Jan. 2, 2020 and in the future they should sell directly to commercial banks.
     The limit on the foreign exchange position of commercial banks would also be lowered to 2.5 percent from 5.0 percent, with both measures aimed at raising the number of participants in the foreign exchange market and boosting the interbank foreign exchange market.
     Since BNA began liberalizing the foreign exchange market by using auctions to set a reference rate in January last year, the kwanza has lost almost two-third of its value.
     Today the kwanza was trading at 491.2 to the U.S. dollar, down 23 percent since October 1, 37 percent since the start of this year and down 66.2 percent since the pre-January 2018 peg of 166.
     The monetary base expanded by 6.81 percent in October as compared to an 11.68 percent contraction in September, reflecting an increase in bank reserves by 8.24 percent, and bank notes and coins in circulation by 3.86 percent.
     The M2 monetary aggregate, which comprises bank deposits, notes and coins, rose 2.97 percent in October while the stock of credit in local currency expanded 2.6 percent in October from September but on an annual basis credit stock was down 4.62 percent.
     Angola's inflation rate was steady at 16.08 percent in October and September, and in September Massano told Bloomberg inflation was expected to fall below 10 percent by 2022, providing scope for interest rates to fall.


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