Angola: Angolan kwanza hits new record low in October amid steep downward trend
October 14, 2015
During October the Angolan kwanza (AOA) continued losing ground against the U.S dollar, thus furthering the trend that began in mid-2014. The fragile currency reflects the economic difficulties that the country is facing amid depressed oil prices and strapped government finances. In fact, the kwanza reached an all-time low on 9 October when it traded at 136.43 AOA per USD. The figure was 8.7% weaker than on the same day in the previous month and 38.0% weaker on an annual basis. As of 13 October, the kwanza had lost 32.5% of its value since the beginning of the year.
The ongoing depreciation of the kwanza follows last month’s decision by the Central Bank to devalue the currency in the interbank market. This is the second devaluation of the currency since June and, according to a source in the Central Bank, further devaluations are expected. Adding to that, planned spending for next year is expected to be cut by a quarter. China’s demand for Angolan oil has fueled a steep increase in the country’s trade in recent years, helping Angola to boost its economy, but also leaving the country considerably vulnerable to global economic swings and policy shifts in Beijing.
The Central Bank decided to leave the monetary policy rate unchanged when it met on 27–28 September following the hike on 28 August. The Central Bank of Angola has hiked its monetary policy rate four times this year to contain soaring inflation. Angola is facing a foreign exchange shortage as low oil prices coupled with diminishing demand from China have taken a slice out of revenues from crude oil, which account for around 95% of the country’s exports and one-third of government’s earnings.
Author: Dirina Mançellari, Senior Economist