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Congo cuts rate 4th time as inflation seen easing

Friday, January 14, 2022 14:41

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The central bank of the Democratic Republic of Congo cut its benchmark interest rate for the fourth time in 10 months, saying this should strengthen the financing of the country’s economy in Congolese francs and thus support the de-dollarization of the economy amid a greater control of inflation.
The Central Bank of Congo (BCC) cut its key interest rate by 1 percentage point to 7.50 percent and has now cut it 11 percentage points after embarking on an easing cycle in March 2021 and following this up with rate cuts in April and June.

Including the latest rate cut, BCC has now completely unwound an 11 percentage point rate hike in August 2020 that was aimed at anchoring inflation expectations after the Congolese franc plunged, pushing up import prices and inflation, due to the collapse in global demand for raw materials and metals during the crises-phase of the COVID-19 pandemic.

Congo is Africa’s largest copper producer and the world’s leading miner of cobalt, used in batteries.

The latest rate cut was decided at meeting of the bank’s monetary policy committee (CPM) on Dec. 30, 2021 and announced on the bank’s website in a statement dated Jan. 2, 2022.

In addition to the rate cut, CPM said banks’ mandatory reserves should be in local currency from now.

“2021 was marked by a stability in the macroeconomic framework,” BCC said, adding this was a reflection a good coordination of monetary and budgetary policies.

Based on the latest estimates, BCC estimated economic growth in 2021 of 5.7 percent, up from 2020′s 1.7 percent, and forecast growth this year of 6.1 percent.

BCC estimated inflation in Congo in 2021 of 5.1 percent in 2021, saying this reflected the relatively stable exchange rate, and inflation of around 5.0 percent in 2022.

The Congolese franc fell sharply in May 2020 in response to the pandemic, and continued its sharp fall until BCC’s rate hike in August, which came the month after the current governor, Malunga Kabuki Mbuyi, was appointed as the country’s first female governor.

After the sharp rate hike, the franc stabilized but ended the year down some 14 percent against the U.S. dollar.

In 2021 the franc mainly moved sideways against the dollar, but below the 2,000 level, to end the year 0.9 percent below its level at the start of the year.

So far this year the franc has strengthened marginally and was trading at 1,991.4 to the U.S. dollar today, up from 1,993.1 at the start of the year.

”The CPM stressed that the outlook for 2022 is good for the Congolese economy,” BCC said, adding the forecast for growth and inflation was based on the “rigorous implementation of sound economic policies” begun in 2021, particularly a respect of the stability pact between the central bank and the finance ministry, the “meticulous: execution of structural reforms, and alignment of monetary and budgetary policies.

www.CentralBankNews.info

Source: http://www.centralbanknews.info/2022/01/congo-cuts-rate-4th-time-as-inflation.html

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