Monetary Policy

The primary objective of Banco de Cabo Verde’s (BCV) monetary policy is to maintain price stability. That is, to maintain the domestic currency’s purchasing power, in order to promote economic growth and job creation.

The operational framework for monetary policy sees interest rates as an operational target, exchange rate stability as an intermediate goal, and the maintenance of price stability as the ultimate objective.

Monetary Policy Strategy

The fixed exchange rate regime adopted by Cabo Verde in 1998, establishing a fixed parity with the Euro, aims essentially to ensure convertibility of the Cabo Verde Escudo and create conditions for price stability, thus protecting the value of the domestic currency, and serve as a credible, nominal anchor for monetary policy.

Monetary Policy Implementation

The key variable in monetary policy implementation is the operational goal. The choice of this goal depends not only on the Central Bank's strategy, but also on the financial system’s development level.

Operational Framework for Monetary Policy

In implementing monetary policy, Banco de Cabo Verde has a responsibility of boosting the efficiency and dynamics of the money market so as to enable a balanced provision of liquidity in the banking system, minimize intermediation costs, ensure transparency of market conditions, and ensure the effectiveness of monetary policy.

In this context, Banco de Cabo Verde has the aforementioned instruments, which are properly regulated, namely open market operations, standing facilities, and minimum reserves.

Interbank Money Market

Institutions may exchange funds among themselves, within the Interbank Money Market, which aims to guide the supply and demand of funds among them, thus making the management of their respective cash flow more flexible. It plays an important role in the financial system, facilitating the Central Bank's ability to carry out the monetary policy, acting in the sale and purchase of funds to absorb or provide liquidity.

Interest Rates

BCV’s official interest rates, which are the most relevant interest rates when it comes to carrying out its main responsibilities, are: the Reference Rate, the Rediscount Rate and the Annual Base Rate. There are also rates associated with lending facilities and deposit facilities and rates associated with Treasury Bills (Government Securities) and Treasury Bonds (Government Securities).

Government Securities

Monetary Policy Committee

Banco de Cabo Verde’s Monetary Policy Committee (MPC) was established on October 27, 2004, with the aim of "periodically reviewing the information available, to support Banco de Cabo Verde’s Executive Board’s decision-making process."

The MPC meets, ordinarily, once a month and, extraordinarily, whenever necessary, when convened by its Chairman.

Monetary Policy Reports

Every six months, the Bank must submit an action plan to the Government which shall include:

A description and explanation of the reasons for the monetary policy to be followed in the next six months; A description of the principles to be followed by the Bank in adopting and implementing the monetary policy for the following year or other period of time determined by the Bank; A review and evaluation of the policy implemented by the Bank during the period corresponding to the last half-year.

Central Bank Securities

Currency Exchange

Reserve Requirement

The Reserve Requirement system aims to essentially stabilize money market interest rates, allowing better regulation of liquidity levels in the banking system and greater efficiency of monetary policy transmission instruments.