Angola's Central Bank Maintains High Interest Rates Amid Economic Growth and Inflation Dynamics

The National Bank of Angola (BNA) has kept its key interest rate at 19.5% for the 14th consecutive month in July 2025, a rate not seen since December 2022. This decision, aimed at curbing inflation—currently at 19.73% in June—reflects a delicate balancing act between cooling price pressures and supporting a fragile economic recovery. For investors in emerging market debt and infrastructure, the central bank's stance signals both opportunity and risk.

The Inflation-Interest Rate Tightrope

Angola's headline inflation, though down from 20.74% in May, remains far from the single-digit targets outlined by the BNA. The central bank attributes this to global oil demand weakness, which has depressed oil prices and introduced upside risks to inflation via currency depreciation. While the kwanza has stabilized compared to its 2023 devaluation, the lingering high rates mean borrowing costs remain elevated, deterring consumer and business spending.

For foreign investors, this environment presents a paradox. High real interest rates (19.5% policy rate minus ~19.7% inflation yields a real rate of -0.2%) make Angolan sovereign bonds relatively attractive in a global context where yields in advanced economies are near historic lows. However, the deeply negative real rate—should inflation remain stubborn—could erode investor returns. Local investors, meanwhile, face higher debt servicing costs for infrastructure projects, though the BNA's liquidity measures (e.g., reducing reserve requirements) may offset some of these pressures.

Economic Growth: A Mixed Picture

Q1 2025 GDP growth hit 3.5% year-on-year, driven by diamond and mineral extraction, construction, and trade. The non-oil sector expanded by 5.7%, a welcome relief as the oil sector contracted by 4.4%. This divergence underscores Angola's ongoing efforts to diversify its economy. However, the oil sector's decline—due to aging infrastructure and underinvestment—remains a drag, contributing to a 3.5% contraction in Q1.

For infrastructure investors, the non-oil growth story is promising. The Lobito Corridor, a $6 billion public-private partnership (PPP) project, is a case in point. Funded by multilateral loans (African Development Bank, World Bank) and U.S. investments ($4.2 billion via the Partnership for Global Infrastructure), this corridor aims to connect Angola's port of Lobito to landlocked DRC and Zambia, unlocking trade and agricultural potential.

Infrastructure: A Double-Edged Sword

Angola's infrastructure pipeline is one of its most compelling investment opportunities. The Diversifica Mais (D+) program, supported by the World Bank, is prioritizing climate-resilient projects in agribusiness and energy. For example, the Zambia-Lobito rail project—backed by $500 million in African Development Bank funding—aims to transport 300,000 tons of copper annually, reducing the corridor's cost of capital.

Yet risks persist. The high-interest-rate environment raises borrowing costs for private developers, while political and regulatory uncertainties—such as delays in PPP law implementation—could deter foreign capital. Additionally, Angola's reliance on oil revenues means fiscal discipline is critical; any slip in fiscal consolidation could undermine investor confidence.

Strategic Recommendations for Investors

1. Emerging Market Debt: Consider Angolan government bonds with maturities aligned with the BNA's policy horizon. The 19.5% rate offers a yield premium, but monitor inflation data for signs of persistence.
2. Infrastructure Equity: Target projects with multilateral guarantees (e.g., World Bank, African Development Bank) to mitigate sovereign risk. The Lobito Corridor's phased approach, with U.S. DFC and European AFD involvement, is a model to follow.
3. Currency Hedges: Given the kwanza's volatility, investors should hedge exposure through forwards or options, especially for short-term investments.
4. Sector Diversification: Allocate capital across non-oil sectors (agribusiness, energy) to reduce dependence on the hydrocarbons sector's cyclical fortunes.

Conclusion

Angola's central bank is walking a tightrope: high interest rates are necessary to tame inflation but risk stifling growth. For investors, the key lies in balancing the allure of high yields with the risks of a slowing economy and currency instability. Infrastructure, particularly in non-oil sectors, offers a compelling long-term play, provided risks are mitigated through multilateral partnerships and diversified funding. As the BNA prepares to reassess its policy in June 2026, now is the time to position for a strategic, risk-aware entry into Angola's evolving market.