Angola: Angolan kwanza plummets in Q2
On 16 June, the Angolan kwanza traded at AOA 705 per USD, marking a 25.6% month-on-month depreciation. Meanwhile, the currency was down 38.5% in annual terms. In year-to-date terms, the kwanza depreciated 28.6%. The downfall of the kwanza came on the back of a weaker performance of the oil sector and lower interest rates. Notably, the kwanza had been exceptionally steady from November to April, which suggests that the Central Bank of Angola (BNA) had intervened in FX markets to sustain the currency after it slumped in October–November. Renewed kwanza weakness hints that the BNA reduced its intervention in FX markets.
The Angolan oil sector has been on a downward spiral in recent months: In Q1, average oil production was 7.0% lower relative to 2022’s average, while Cabinda oil prices were down by 21.3% on average compared to the same period. Consequently, oil export revenues declined by around 30% year-on-year over the quarter. In April–May, prices remained subdued, while production recovered slightly as maintenance work in the Dalia oil field was completed. That said, production remained below last year’s levels. These developments took a toll on the currency, given that lower oil revenue leads to lower inflows of USD, which in turn weighs on the kwanza.
Additionally, the BNA resumed easing interest rates in March, delivering a 100 basis point cut, adding further downward pressure on the currency. In May, the kwanza started losing ground at a rapid pace. Accordingly, on 19 May, the Bank stood pat and put National Treasury Bonds worth USD 350 million on the market to be purchased in kwanzas. Although these measures provided some support to the kwanza, they were not enough to prevent a sharp depreciation in the following weeks.
Looking forward, there is significant uncertainty over the currency’s path. The health of the oil sector will be a key factor to monitor; this year, our panelists see both Angolan oil production and global oil prices below 2022’s levels. Another crucial factor to watch is the course of action of the Central Bank. Recent kwanza weakness spreads doubts over the BNA’s easing cycle; the Bank is likely to remain cautious and hold rates again in upcoming meetings.