Monetary policymakers of the Democratic Republic of Congo more than doubled the central bank’s benchmark interest rate amid a depreciating currency and mounting inflationary pressures.
The rate was increased to 18.5% from 7.5%, central bank Governor Deogratias Mutombo said in a statement shared by a spokesman from the institution on Saturday. It’s at the highest level since April 2018. Policymakers left the rate unchanged at 7.5% in July after cutting from 9% in March to support the economy following the coronavirus fallout.
Foreign reserves fell US$47M to US$832M in July as the central bank moved to support the currency. The franc has lost about 17% against the dollar since January, according to data compiled by Bloomberg. The domestic currency has been under pressure, partly because around 90% of Congolese bank deposits and loans are in dollars, according to the International Monetary Fund, yet the government spends in francs.
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Central bank bonds should now become more attractive, which will help the bank to mop up excess liquidity and slow the currency’s slide, Mutombo said.
On Friday, President Felix Tshisekedi announced that his government would also tighten fiscal policy to support the currency and fight inflation. Price-growth might average 20.8% this year against a target of 7%, according to the central bank.
Miners in the world’s biggest cobalt producer have continued operating despite the pandemic. That could limit economic contraction to 1.7% this year, compared with an earlier forecast to shrink by 2.4%, according to the central bank. Additionally, Congo stopped offering miners value-added tax exemptions on imports in bid to boost government revenue.