The Monetary Policy Committee (MPC) of the Central Bank of Angola recently raised the country’s benchmark interest rate from 15.5% to a record 20%. This sharp and unexpected rate hike is one of the attempts of the National Bank of Angola (NBA) to curb inflation, marking the first increase in benchmark interest rates since November 2017.

Rising inflation threatens Angola’s economic growth

According to Bloomberg News, due to the “evolution of key indicators,” the Monetary Policy Committee was forced to convene a meeting in advance to finally approve interest rate hikes. According to NBA Commissioner Jose de Lima Massano, these indicators pose a threat to Angola’s growth trajectory. He explained:

Since the beginning of the year, the spread between inflation and interest rates has been widening. Current data indicate that inflationary pressures have increased, which may put the central bank’s 19.5% inflation target at risk by the end of the year.

According to data from the National Bureau of Statistics of Angola, the country’s year-on-year inflation has been on the rise since December 2019. For example, the inflation rate in December 2019 was 17%, but by March 2021 it had exceeded 26%.

Central bank’s concerns about exchange rate stability

The data also shows that Angola’s year-on-year level last year was only above the 26% threshold in December 2017. The data seems to indicate that unless the NBA takes action, Angola’s inflation rate may continue to soar and may reach as high as 40% in December 2016.

Angola raises benchmark interest rates as the central bank tries to curb rising inflation

At the same time, Bloomberg News quoted Lisbon Eaglestone Advisory SA analyst Tiago Dionisio as saying that although the decision will have an impact on the economy, the NBA is more concerned about the stability of the local Kwanza currency. He says:

(The decision) shows that the central bank pays more attention to the current inflation trajectory and maintains the stability of the Kwanza exchange rate.

At the same time, the report pointed out that these changes still need to be gazetted before they become law.

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Is raising interest rates the best way for emerging economies to curb inflation? Tell us what you think in the comments section below.

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