Bank of Cape Verde raises reference interest rates by 25 basis points

O Banco de Cabo Verde (BCV) decided today to increase the reference interest rates by 25 basis points, raising the principal rate and the liquidity lending and absorption rates to 2.75%, 3% and 2.5%, respectively.

‘The BCV considers it appropriate to increase the reference interest rates with the aim of cancelling the spread’, i.e. the differential for euro area rates, ‘taking into account the risks of a possible foreign exchange exit’, justified after meeting of the Board of Directors and on a recommendation from the Monetary Policy Committee.

The central bank notes that both the US Federal Reserve and the European Central Bank (ECB) raised official interest rates by 25 basis points at the September meeting.

The external context ‘remains marked by increased inflationary pressures’ and ‘interest rates have increased considerably on international markets, reflecting the expectation of more restrictive action by the ECB’.

The situation ‘should worsen the spread’ between internal interest rates and those in the euro area, representing a risk to the development of the country’s official foreign reserves’, which the regulator intends to safeguard.

According to the BCV, among other data, there have already been indicators of increased net external assets of commercial banks, but ‘net international reserves remained at comfortable levels, ensuring 8.8 months of estimated imports to 2026’.

The minimum cash availability coefficient remains at 12%, he added.

The central bank notes that it will continue to monitor the indicators to intervene, if necessary, with a view to ‘preserving price stability, the robustness of the financial system and the credibility of the exchange rate regime’.

The Cape Verdean shield has a fixed parity regime with the euro (110,265 escudos per euro).

The new structure of reference interest rates will enter into force from Monday and the next meeting of the Monetary Policy Committee is scheduled for 8 December.