Friday, April 16, 2021

Congo cuts rate 2nd time, inflation slows, franc stable

     The central bank of the Democratic Republic of Congo lowered its monetary policy rate for the second consecutive month, saying it was easing funding conditions in light of a slowdown in inflation, a stable foreign exchange market and favorable prospects for the short term that don't point to any major shocks.
     The Central Bank of Congo (BCC) cut its policy rate by another 500 basis points to 10.5 percent, according to a statement from the bank's monetary policy committee published on twitter by an advisor to the bank's governor.
      BCC has now cut its key interest rate by 800 basis points this year following a 300 point cut on March 12.
     The two rate cuts partly reverse a sharp 1,100 basis point rate hike in August last year aimed at re-anchoring inflation expectations after the Congolese franc plunged, pushing up import prices and inflation, due to falling global demand for metals and raw materials amid the COVID-19 pandemic.
     Prior to the August hike, which came at an unscheduled meeting of the bank's policy committee, the rate had been cut by 150 basis points in March to 7.50 percent to cushion the country's economy from the impact of the pandemic.
     In early March last year the franc began to weaken and then fell sharply - some 12 percent against the U.S. dollar - from early May to early August. 
     Since then the franc has stabilized but still bounced off lows around 2,000 to the dollar last month and was trading at 1,972 to the U.S. dollar today, down 14 percent this year.
     The central bank said the foreign exchange market was stable with the franc depreciating 0.1 percent in the last month. 
     After jumping to 31.42 percent in July 2020 from 7.54 percent at the start of 2020, inflation in Congo has fallen rapidly to 6.23 percent in January this year from 22.02 percent in November last year.
     Despite the hit to global economic activity from the pandemic, Congo's economy expanded by 1.7 percent last year, BCC said, due to a rebound in the demand for its main exports, copper and cobalt.
      Surveys of business leaders show rising confidence about the economy in the short run and the International Monetary Fund forecasts 3.8 percent growth this year and inflation of 10.9 percent.


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