Nearly eight years into the job, Congo’s central bank governor cut the policy rate by eight points in four weeks.

By Kanisa Magazine · April 2021

Déogratias Mutombo Mwana Nyembo has governed the Banque Centrale du Congo for nearly eight years, and in April 2021 he made the largest move of the recent record. The BCC’s policy rate stood at 18.5 per cent through the week of 24 March and at 10.5 per cent from the entry of 21 April, eight points lower in under a month.

The decision matters to every business that borrows, lends, imports or pays wages in Congo. It rests on a claim central to his tenure: that the franc can be held steady with fewer defences than the country’s history suggests, in an economy where, according to press coverage of his own press conference, about 85 per cent of bank deposits are in foreign currency.

This profile reads the governor through what the BCC’s weekly digest of 29 April shows he has moved, and what he has so far left alone.

The dealer who became governor

A career on the BCC’s markets side preceded the appointment, and the habits show.

President Joseph Kabila announced Mutombo’s appointment on national television on 14 May 2013, according to Radio Okapi’s report that day. He succeeded Jean-Claude Masangu, who had directed the bank since 1997, and he came from inside it, having been director of banking operations and markets.

That background points a reader to the right evidence. The BCC’s decisions are most legible in its market data: the indicative rate, the weekly bill auctions and the reserve figures.

A one per cent promise

His first public line on volatility set a tolerance that still frames the market.

In December 2013 Mutombo presided over the central bank’s eleventh monetary policy committee meeting. Adiac reported that he put the franc’s year-end slide down to seasonal demand for dollars as businesses stocked up for the holidays, said the BCC ensured volatility stayed within about one per cent, and saw no cause for alarm. The committee left the policy rate at 2 per cent, with reserve requirements of 8 per cent on sight deposits and 7 per cent on term deposits.

The tolerance is a useful yardstick for April 2021. The digest puts the BCC indicative rate at CDF 1,971.82 per dollar at the end of December and CDF 1,988.07 at the end of April, a move of 0.8 per cent in four months. By his own standard the franc has been inside the band.

Three instruments, one bet

The cut leaves the policy rate carrying more of the burden than its design intended.

On 16 April Mutombo told reporters in Kinshasa that the policy rate was moving down, 15.5 to 10.5 per cent, effective the following Monday, 19 April. The report of the briefing gave two reasons: a steady exchange rate, and projected annual inflation of 4.6 per cent, below the 7 per cent goal. It listed three instruments: the policy rate, the reserve requirement coefficient and bills. It put reserves at about US$500 million, two weeks of imports, against a goal of US$3 billion.

The digest tells the same story in the market. The weighted average rate at the seven-day bill auction fell from 12.00 per cent at the end of December to 4.50 per cent by late March, then recovered to 8.90 per cent at the 28 April auction. The BCC was bringing market rates down first and the policy rate second.

How a cut reaches a loan

The policy rate is the price banks pay the BCC for cash, so the channel runs through bank liquidity.

The digest’s methodology note defines the policy rate as the rate charged at the BCC’s seven-day lending window, with the overnight standing facility priced one point above it. The note adds that the rate is supposed to stay positive against annual inflation. On the digest’s 14.64 per cent annual measure, the real policy rate on 28 April was minus 4.14 per cent, so the BCC had stepped outside its own convention.

The cut matters most where banks are short of cash. On 29 April bank current accounts at the BCC stood at CDF 1,302 billion, against notified reserve requirements of CDF 1,783 billion, a shortfall of CDF 481 billion. A cheaper policy rate lowers what a short bank pays to cover that gap, and the lending stock of CDF 6,762 billion was 21 per cent above April 2020.

Liquidity has swung widely under his watch this year. The balances banks held with the BCC the day before each seven-day auction ranged from CDF 1,014 billion in early January to CDF 1,629 billion in mid-March, and stood at CDF 1,473 billion on 28 April. Those swings are what the weekly bill auction is built to absorb. The governor’s levers are therefore working on the part of the system he can see weekly, while the dollar part remains outside the window.

The reach is limited by dollarisation. If roughly 70 per cent of the money supply is in foreign currency, as the briefing report put it, the policy rate acts directly on a minority of balances.

What the decision asks of business

Borrow in francs where the cut passes through, and treat the reserve line as the test of the bet.

For a company with franc revenue, the cut makes franc borrowing cheaper at the margin, and it should be tested with banks now rather than assumed. For a company that earns and borrows in dollars, the policy rate matters less than the franc’s stability and the reserve line.

The measure of whether the governor’s bet works will come in the weekly digest. If the strict reserve figure, US$512 million on 28 April, begins to climb toward the stated goal while the indicative rate stays near CDF 1,990, the cut will look like confidence earned. If it does not, the 10.5 per cent rate will look early. Boards that borrow, import or hedge in Congo should read that line every week.