Global outlier Angola has room to cut rate as currency jumps
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 price-gains accelerate in many 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.
The Angolan central bank’s monetary policy committee next meets on September 26. The yield on the nation’s eurobonds maturing in 2032 fell 34 basis points at 2:09 p.m. in Luanda. The premium investors demand over US Treasuries to hold Angola’s debt currently stands at 857 basis points, according to JPMorgan Chase & Co. indexes.
Massano said Angola’s inflation may slow to less than 10% by the second half of next year, earlier than the central bank’s previous prediction of 2024. This will give the central bank more room to stimulate the economy, which is expected to expand 3% this year, according to Massano.
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.
A big challenge for the new president will be to tackle a debt burden.
While Fitch Ratings Inc. predicts Angola’s public liabilities will fall to 56.5% of gross domestic product in 2022, from 123.8% in 2020, its overseas debt amortisation 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 stabilising the exchange rate by allowing the local currency to float freely, slowing inflation and improving the reputation of Angola’s financial sector after a series of reforms with the International Monetary Fund.
Massano’s first stint as central bank governor during 2010-2015 was more difficult. At the time, Angola was facing a soaring deficit following a collapse in oil prices. When Massano left five years later, Angola’s foreign exchange reserves were at a record high and inflation rate was at the lowest level in the nation’s history.
“It’s like I have a vacation,” Massano said, in a separate interview in his office inside the central bank’s pink-colored building.
The central banker, who enjoys jogging on weekends to “clear his mind,” declined to comment on whether he would be available to serve a third term as governor of the Banco Nacional de Angola.
“We’re focused on doing our jobs and fulfilling our mandate,” said Massano. “We don’t do miracles.”
