The Central Bank of Congo (BCC) monetary policy is still… impotent…

In 25th of January article, I argued that the Central Bank decision to increase its prime rate from 7 to 14% wouldn’t help curb the Congolese Franc (CDF) depreciation.

Unfortunately (for the country), I was right and 5 months later, the local currency further depreciated by almost 18%.

Earlier this week, the BCC has increased its prime rate from 14 to 20% to stabilize the CDF.  Once again, I doubt this decision will have any positive impact for the same reasons explained in my previous article.

With an inflation of 36%, the real interest remains largely negative (-16%) and therefore, there is no incentive to keep CDF. Why would someone buy treasury bills in CDF if the return worth less than the principal invested equivalent in United States Dollars (USD) (remember that the USD is the primary currency in the DRC)?

The reality on the ground is that people lost trust in the CDF; therefore, they try to get rid of it as fast as possible. People are expecting the local currency to depreciate everyday and are ready to buy USD at any rate fueling the CDF depreciation further… It is a vicious circle, a self-fulfilling prophecy.

In my opinion, the only short-term remedy would be for the BCC to intervene on the Foreign Exchange market by selling USD to reduce a little bit the pressure on the CDF. However, the international reserves are limited to CDF 717m. Therefore, the intervention can only be limited.

Last week the Chamber of Mines, announced that they are expecting a record production of copper for the year 2017 to 1,05 m tons. Copper is DRC primary source of foreign currencies. Hopefully, this expected increase of production (+2,4%) would allow the BCC to rebuild its international reserves in order to intervene on the market and limit this hemorrhage.