Monetary policy makers 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. Policy makers 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 $47 million to $832 million 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.
- 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.