Luanda – The National Bank of Angola (BNA) has raised basic interest rate from 17 to 18 percent, the permanent liquidity facility from 17.5 to 18.5 percent, the permanent liquidity absorption facility from 13.5 to 17.5 percent, with aim to change the current monetary or interbank market scenario in the country.
According to the BNA, the measure includes an increase in the coefficient of the mandatory reserves in national currency to 18 percent and the elimination of the custody fee on the excessive free reserves of banking financial institutions deposited at BNA.
According to the BNA governor, Manuel Tiago Dias, the increase in interest rates follows the current inflation upward trend in goods and services, which could jeopardise the goal of achieving a single-digit inflation rate in the medium term.
As regard the elimination of the custody fee applicable to excess free reserves deposited by commercial banks at the BNA, Manuel Dias said the measure has been implemented due to the fact that it has achieved the objective of mobilising stranded costs in the banking financial system to strengthen financial intermediation.
Manuel Tiago Dias clarified that the increase in interest rates is a clear signal the BNA is giving to the market in general and commercial banks in particular about the new direction it intends to give to the monetary policy.
As regard to the rising inflation rate for the main goods and services, the BNA governor said the Angolan government has taken a number of measures to increase the supply of the most consumed products in the country.
Manuel Dias numbered the incentives for national production and the reduction in Value Added Tax (VAT) from 14 to 5 percent on widely consumed goods, as two of the measures that could mitigate the growing price hike in the Angolan economy.
Angolan economist José Lumbo on his turn, said he believes that with this decision by the BNA, a reduction in investment in the economy is expected, since entrepreneurs will feel uncomfortable applying for commercial banks loans, due to the increase in the rental of the capital to be granted.
"Since the interest rate is the amount you pay for borrowing money, people may give up using credit for investment, given the rise in rates, because inhibiting costs is normally a rational practice for each economic agent," the economist said.
José Lumbo added that the increase in interest rates will be beneficial for people seeking to invest their money in commercial banks, which may have an attractive return.
The economist spoke of the possibility for the BNA to verify the excess liquidity in the national market, which has caused rising inflation on essential goods, underlining that this was one of the main reasons prompting the Monetary Policy Committee to increase interest rates.
According to the BNA, the current trajectory of inflation recommends maintaining the restrictive direction of monetary policy to align it with the medium-term objective, a situation that will continue to be monitored by the Central Bank.
The BNA Monetary Policy Committee (MPC) is expected to meet in January 2024 to assess the measures implemented. QCB/AMP
