London August 23 2022: Angola’s central bank may consider cutting its benchmark rate as inflation slows and after its currency appreciated at the fastest pace in decades.
The Banco Nacional de Angola kept its benchmark rate at 20% for a sixth straight meeting in July, aided by the kwanza’s 22% gain against the dollar this year that makes it the world’s second-best performing currency tracked by Bloomberg. The central bank forecasts inflation will slow to below 18% by year-end from 21.4% in July.
With price-gains slowing “we expect interest rates to follow the same trend,” Governor Jose de Lima Massano, 53, said in an interview with Bloomberg TV on Tuesday. Massano wants to boost foreign-exchange reserves to cover 10 months of imports from eight months, he said.
Cutting borrowing costs will make Angola, Africa’s second-largest oil producer, a global outlier as inflation accelerates in countries across the world. UK inflation is on track to surge above 18% for the first time in almost half a century next year, while Indonesia on Tuesday unexpectedly raised borrowing costs for the first time since 2018.
Angolans will vote to elect its next leader on Wednesday in the closest race since the end of a civil war in 2002 and lower interest rates will be good news for the winner. A smooth process will help policy makers such as Massano build on an economic recovery that resulted in the nation’s credit rating being raised by S&P Global Ratings for the first time in about a decade.
President Joao Lourenco, who heads the Popular Movement for the Liberation of Angola, or MPLA, is seeking re-election. He’s facing tough opposition from Adalberto Costa Junior, head of the National Union for the Total Liberation of Angola, or Unita.
The new president will have to tackle a debt burden.
While Fitch Ratings Inc. predicts Angola’s public debt will fall to 56.5% of gross domestic product in 2022, from 123.8% in 2020, its overseas debt amortization in the three years to 2025 will cost about $5.5 billion a year. That’s because Lourenco’s government has re-profiled bilateral debt owed to Chinese official lenders, according to Fitch. The southwest African country owes about $19 billion to China.
This is the second time Massano is at the helm of Angola’s central bank.
During his current tenure, which began in 2017, the UK-educated Massano has been credited with stabilizing the exchange rate by allowing the local currency to float freely against other currencies, slowing inflation and improving the reputation of Angola’s financial sector after a series of reforms with the International Monetary Fund.
