Angola's central bank left its benchmark interest rate, the BNA rate, unchanged at 15.50 percent interest but raised the reserve requirement and established a new interest rate for a 7-day facility as it implemented a floating exchange rate regime for the kwanza in which its value is set according to demand and supply.
At an extraordinary meeting of the National Bank of Angola's (BNA) monetary policy committee to evaluate the ongoing reform of the exchange rate regime that began in January 2018, a 10 percent interest rate was set for a 7-day maturity facility, the zero percent rate was kept for the overnight liquidity-absorbing facility, the reserve requirement for kwanza liabilities was raised to 22 percent from 17 percent, and a 2.0 percent margin on the reference exchange rate by commercial banks trading in foreign currency was removed.
In addition, BNA said it had decided to relax the limits on various payment instruments used to finance goods imports.
BNA said it wants to implement the new market-determined exchange rate regime quickly, describing the current conditions as "the best possible" following the start of the macroeconomic stabilization program.
The free float of the kwanza is the latest major reform move by the BNA since Governor Jose Massano took over in October 2017 as part of Angolan President Joao Laurenco's efforts to clean up the country's image as a corrupt state.
Massano's reforms include replacing the fixed exchange rate regime with auctions to set a reference rate in January 2018, adopting the monetary base as an operational variable to better control liquidity, lowering and changing the basis for banks' mandatory reserves, and unifying the rate on the marginal lending facility with that of the bank's basis interest rate.
The kwanza has declined steadily since the fixed regime was ended in January 2018 and was trading at 455.17 to the U.S. dollar today, down 32.2 percent this year and down 63.5 percent since the previous peg of 166 to the dollar.
As part of its efforts to improve the country's financial sector, the BNA revoked the banking licenses of two banks in January after they failed to raise their capital to meet new minimum levels and Massano has said more banks may have their licenses revoked when the results of asset quality assessments are released later this month.
Angola, Africa's second largest oil producer, currently has 26 banks and any commercial bank that needs to raise its capital will have until June 2020 if the assessment determines shortages.
Angola's economy still hasn't recovered fully after the plunge in crude oil prices in 2014, with economic output last year still below that of 2014.
In the second quarter of this year gross domestic product contracted by an annual 0.1 percent, down from a 0.3 percent fall in the first quarter of this year.
Angola's inflation rate fell to 16.08 percent in September, its lowest since January 2016, and in September Massano told Bloomberg inflation was expected to fall below 10 percent by 2022, proving scope for interest rates to be lowered.
BNA has cut its key rate twice this year, in January and May, by a total of 100 basis points.
www.CentralBankNews.info
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