DRC Central Bank Congo intends perpetuate current stability of the exchange rate. as DRC Central Bank Congo intends perpetuate current stability!

Like any serious organization in this new year, the monetary policy committee held its last meeting for the 2019 financial year, under the leadership of Mr. Deogratias Mutombo Mwana Nyembo, Governor of the Central Bank of Congo.

On this occasion reports the press release from the Central Bank of Congo, which reached the editorial office of Congopolitis.net on Monday, January 13, 2020, the committee reviewed the main economic and financial facts which marked monetary policy during the year. 2019 before dwelling on the ad hoc guidelines for the year 2020.

DRC Central Bank Congo intends perpetuate current stability

However, given the ambitions of the Sylvestre Ilunga Ilunkamba Government to access a formal program with the IMF, supported by the Extended Credit Facility, the Central Bank of Congo intends to maintain in 2020 its objective of medium-term inflation rate at 7.0%.

To do this, it intends to perpetuate the current stability of the exchange rate. In addition, the system for supplying liquidity to the economy will be improved by refinancing granted by auction and by implementing relatively long maturities.

The Monetary Policy Committee held its last ordinary meeting for Friday, January 10, 2020, for the 2019 financial year, under the Chairmanship of Mr. Déogratias MUTOMBO MWANA NYEMBO, Governor of the Central Bank of Congo.

On this occasion, the Committee reviewed the main economic and financial facts at the external and internal levels having marked the conduct of monetary policy during the year 2019 before dwelling on the ad hoc guidelines for the year 2020.

On the outside

2019 was marked by a slowdown in global economic activity with a growth rate set at 3.0% compared to 3.6% recorded in 2018, a low never reached since the international financial crisis of 2008. This contraction is due not only to cyclical factors, including in particular the increase in obstacles to trade and geopolitical tensions, but also, to structural factors such as low productivity and the aging of the population, particularly in advanced economies .

In emerging and developing countries, growth was down 0.5 points compared to 2018, standing at 3.9%. This situation is the consequence of the decline in economic activity in all the major regions except the emerging and developing countries of Europe. In sub-Saharan Africa, growth should remain at 3.2% in 2019, in addition to the weak results that the three main economies of the region should continue to record.
As for the prices of the raw materials exported by the DRC, they posted overall decreases, from year to year, with a significant contraction of the cobalt price of more than 47.2% in 2019, due overall the decline in activity in the manufacturing industries in China, a large consumer of Congolese mining products.

Inside

In 2019, there was a decline in economic activity, evidenced by a growth rate of 4.6% returning from 5.8% in 2018. Although less dynamic compared to the previous year, this growth remains above the average for sub-Saharan African countries, estimated at 3.2% by the IMF. This result is evidenced by the evolution of the gross balance of opinions of business leaders, which experienced a decline compared to the previous year, mainly due to the weakness of domestic demand.

Regarding the goods and services market, there was an erratic development of domestic prices, with a monthly inflation peak of 0.59% in December, up 0.19 points from the previous month. Despite this development, the pace of CPI growth in 2019 confirmed the continuation of disinflation. Thus, from 7.2% in 2018, the inflation rate stood at 4.58% in 2019; level well below the medium-term objective of 7.0%.

In terms of public finances, the execution of the state’s financial operations resulted in an annual deficit of CDF 564.8 billion in 2019 larger than that of 203.2 billion, recorded the previous year. In fact, public revenue stood at CDF 7,008.2 billion in 2019 against 7,086.6 billion and expenditure at CDF 7,573.0 billion coming from 7,289.8 billion in 2018.

As for the external sector, the stability observed on the foreign exchange market during the first ten months experienced some turbulence from the end of November 2019. Thus, a low average monthly depreciation of 0.02% recorded during over this period, the national currency posted a monthly depreciation of 0.57% and 0.54% in November and December, bringing the cumulative depreciation rate at the end of the period to 2.23% on the interbank market. The same trend observed on the parallel market explains the cumulative depreciation rate of 2.94%. Indeed, the indicative and parallel rates were set at 1,672.9 CDF / USD and CDF 1,725.6 against CDF 1,635.6 and CF 1,675.0 respectively at the end of December 2018.

As for international reserves, they increased from USD 660.03 million at the end of 2018 to USD 1.03 billion at the end of 2019, i.e. 5.0 weeks of imports of goods and services from own resources. This increase is due in particular to the receipt of a Rapid Credit Facility (FCR) of USD 368 million, as part of the Outstanding Reference Program with the IMF.

Regarding the conduct of monetary policy in 2019, it remained cautious. The Issue Institute has ensured, as usual, the control of monetary aggregates with regard to their programmed levels in order to preserve the stability of the macroeconomic framework.

In this context, the interest rate was reduced from 14.0% to 9.0% and the total outstanding amount was increased to CDF 55.0 billion at the end of December 2019 against 42.5 billion previously, i.e. annual CDF 12.5 billion. As for the reserve requirement, it made it possible to draw down CDF 225.0 billion although its coefficients were maintained at their 2018 level, namely 13.0% and 12.0% for sight and time deposits in foreign currencies as well as 2.0% and 0.0% for sight and time deposits in national currency.

However, in view of the Government's ambitions to access a formal program with the IMF, supported by the Extended Credit Facility, the Central Bank intends to maintain in 2020, its medium-term inflation rate target of 7.0% To do this, it intends to perpetuate the current stability of the exchange rate. In addition, the system for supplying liquidity to the economy will be improved by refinancing granted by auction and by the implementation of relatively long maturities.
The reserve reserve coefficients should overall remain at their current 3 levels and the Central Bank of Congo voucher will be used for fine adjustment of liquidity, thanks to the reintroduction into the national economy, of the issue of state values.

Finally, the Monetary Policy Committee urges the Government to continue and intensify the implementation of structural reforms underpinning the Program with the IMF supported by the Extended Credit Facility.