The Central Bank of the Democratic Republic of Congo has increased the interest rate of the country from 7.5 percent to 18.5 percent. Central bank official, Plante Kibadhi made the disclosure last Sunday.
Earlier in March 2020, the apex bank had lowered the rate from nine percent with an aim to cushion the economy from the grave impacts of the coronavirus crisis, a tactic that has largely been adopted by lending economies in Africa since the outbreak of COVID-19.
Central banks often reduce interest rates to encourage the private sector to borrow money and credit facilities that can keep business operations afloat. However, lower lending rates can trigger excessive cash flow and consequently increase the general rate of inflation.
The outbreak of the pandemic largely affected private enterprises in the DRC as the government imposed lockdown measures to contain the spread of the virus. The government also had to improvise measures and policies to support the country’s economy.
Last April, the International Monetary Fund– IMF granted DR Congo $363.27 million to address the recession caused by the pandemic. The monetary body also said that the reduction of interest rate would re-anchor inflation expectations.
Going by the Central Bank’s statistics, inflation in Congo has been over 14 percent over the last two years, an estimated 10 percentage points higher than at the same point last year.
The federal bank still looks forward to an economic contraction of 2.4 percent this year, compared with growth of over 4 percent in 2019 partly due to disruptions caused by coronavirus on mining, which accounts for a third of the nation’s output.