Angola: Central bank to hold benchmark rate at 15.5 pct to end-year – Fitch analyst

Fitch Solutions, the consulting arm of Fitch Ratings, expects the National Bank of Angola to maintain its benchmark interest rate at 15.5% until the end of this year to control inflation, which is expected to average 21.9%, according to a note sent to investors.

The note, which Lusa has seen, argues that the central bank will hold rates steady as it is tries to control “inflationary pressures” even as the economy continues in recession. Fitch sees average inflation rising from 17.1% last year to 21.9% this, before slowing to 18% next year, partly reflecting a fading of the effects of the coming into force of the country’s first ever value-added tax in October of last year.

With a “slight recovery” expected next year in domestic production of crude oil as well as global crude prices, the pressure on the kwanza should ease, Fitch analysts believe, arguing that this will give room for a cut of 50 basis points in the benchmark rate some time in the first half of 2021. 

As global demand for oil rises next year, the country’s reserves of foreign currency will increase and the pace of depreciation of the kwanza will slow, in turn easing pressure on inflation, they conclude.

Last week Angola’s finance minister, Vera Daves, said that one of the reasons for the high level of public indebtedness – which the International Monetary Fund sees at over 120% of gross domestic product this year, was precisely the kwanza’s recent weakening.

In a conversation as part of the IMF’s annual meetings with the director of its Africa department, who recently approved the disbursement to Angola of $1 billion (€850 million) under the third revision of its financial adjustment programme, which has been increased to a total of $4.5 billion, Daves played down the significant of the increase in the debt-to-GDP ratio.

“The stress on the Treasury is significant due to the depreciation of the kwanza; that is what has caused the debt to GDP ratio to rise very significantly,” she said, adding that the government expects the ratio to drop to around 70% in the next five years.