BCC keeps key interest rate unchanged – Banque Independiente de Congo

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The Monetary Policy Committee (CPM) decided to maintain the key interest rate of the Central Bank of Congo (BCC) unchanged at 25%. The main reason is the decline in inflation. However, in the market, the prices of some basic products have increased. The monetary policy of the BCC is hampered by the strong dollarization of the economy. This situation limits the scope of action of the Central Bank of Congo.

Gaston Mutamba Lukusa

On May 31, the Monetary Policy Committee (CPM) decided to maintain the key interest rate of the Central Bank of Congo (BCC) unchanged at 25%. The same applies to the mandatory reserve factor for all deposits, which is 10% for demand deposits in Congolese francs and 0% for time deposits. For foreign currency deposits, the statutory reserve factor remains at 13% for demand deposits and 12% for time deposits. The main reason is the decline in inflation. It rose from 7.6% in May 2023 to 5.9% in the same period of 2024. Note that the inflation rate in 2023 is 23.8%, which has led to the erosion of the population’s purchase of electricity.

The monetary policy of the BCC is based on three main tools, namely the key interest rate or reference rate, the mandatory reserve factor and commercial paper. The key interest rate is applied when commercial banks refinance with the central bank. Just as natural and legal persons borrow from banks when they are short of cash, commercial banks also borrow from the central bank when cash flow is tight. In this case, the interest rate applied is the key interest rate. When the interest rate is high, bank charges increase, and when the interest rate is low, bank charges are the opposite.

The economic and financial situation in the Democratic Republic of the Congo requires caution. Although the BCC confirms that inflation has fallen, the prices of several basic products on the market have increased (rice, cassava, corn, vegetables, beer, sweet drinks, etc.). This makes you wonder if we live in the same world. With the depreciation of the exchange rate and the decision of some OPEC+ countries to limit oil supplies, fuel prices at the pumps are likely to rise. In this context, it is difficult to understand the government’s decision to reduce fuel prices on May 23, a month after raising them. On May 25, the price of gasoline increased from 3,475 Congolese francs to 3,440. The price of oil increased from 2,900 CDF to 2,875 CDF, and the price of diesel from 3,465 CDF to 3,435. This is incomprehensible in a situation where oil companies are facing cash flow difficulties due to the inability of countries that subsidize the price of oil products to meet their obligations. Instead of lowering the price of oil products, it would be better to maintain the price of oil products and pay the added value to oil companies. The next increase in oil prices on the international market could soon lead to fuel shortages and price increases. The risks of budgetary slippage and inflationary pressures remain high due to the war in the east of the country and the improvement of the country’s lifestyle after the establishment of new institutions.

The BCC’s monetary policy is hampered by the strong dollarization of the economy. Strong dollarization limits the Congolese central bank’s scope for action. When most of the intermediation is in dollars, the transmission of the policy rate is diluted. Therefore, on June 3, the BCC asked commercial banks to configure electronic payment terminals only for Congolese francs from July 31. Currently, only 13% of the terminals in the country are configured to accept Swiss francs. The BCC’s decision has nothing to do with bank ATMs. But in a country where almost 80% of the currency in circulation is in dollars, the situation becomes complicated.