Angola added its name to the growing number of central banks that are raising interest rates in response to a faster-than-expected rise in inflation by hiking its key interest rate by a sharp 450 basis points in its third move this year to tighten its monetary policy stance.
The Bank of Angola (BNA), one of the few central banks that kept interest rates steady last year as the COVID-19 pandemic swept the globe, raised its basic interest rate by 450 basis points to 20.0 percent, its first rate hike since November 2017.
BNA also raised its Standing Liquidity Lending Facility rate to 25.0 percent from 19.88 percent and the rate on its 7-day Permanent Liquidity Absorption facility to 15 percent from 12 percent.
The central bank’s move today came as a surprise because the monetary policy committee meeting was brought forward from the initially scheduled date of July 29 in light of what it said was the evolution of inflation, which made a more immediate assessment of the situation “essential” in order to assess the need to take corrective measures.
Angola becomes the 18th central bank to raise its interest rates this year to curb growing inflationary pressures, easily outpacing the 7 central banks that have cut rates in an effort to stimulate economic activity that is still being impacted by the pandemic.
Angola’s inflation rate has hovered between 23 and 25 percent since July last year and in March the central bank raised the rate on its liquidity absorption facility due to the persistent inflationary pressures.
This move came after BNA after in January said there was an “evident” need for a more restrictive monetary policy to ensure inflation would decline to its target in 2022.
Today BNA said the rate hike aimed at reversing the trajectory of inflation to reach the target of 19.5 percent inflation by the end of 2021, reduce distortions in the monetary policy corridor and place the key rate in an intermediary level between the lending and liquidity absorption facilities, improve monetary conditions for more efficient intermediation, stimulate savings and exchange rate stability.
At its previous policy meeting in May, BNA’s monetary policy committee revised upwards its inflation target for this year to 19.5 percent from an earlier target of 18.7 percent.
BNA said central banks in emerging countries had already started the process of moving their monetary policy stance to a more restrictive one, anticipating the action of central banks in developed countries and thus help absorb any possible shocks.
“At a national level, inflationary pressures persist and have proved to be greater than expected, despite measures taken in the first quarter of this year to minimize the shock,” BNA said.
In May Angola’s inflation rate was 24.94 percent, up from 24.82 percent in April and BNA said data for the first half of June point to continued unfavorable price developments.
It added the trajectory of core inflation, which excludes administered and volatile prices, is incompatible with the inflation objective, both in the short, medium and long term.
In addition, the slow speed in normalizing food supply against the inelasticity of demand, points to continued high levels of inflation, despite a stable exchange rate, and this is putting at risk the inflation objective for this year.
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