Angola: Kwanza depreciates at faster rate in October
The Angolan kwanza continued losing ground against the U.S. dollar in recent weeks. On 11 October, the kwanza ended the day at 397.2 per USD, depreciating 8.5% over the same day in September. Furthermore, the currency was down 22.5% on a year-to-date basis—making it one of the worst-performing currencies in Africa so far this year—and was down 23.3% in year-on-year terms.
The kwanza has been depreciating steadily this year as the Central Bank continued to pursue its controlled adjustment of the exchange rate since abandoning the peg to the USD in January 2018. The Bank’s goal of eliminating the gap between the official exchange rate and the black-market rate was reinforced by a three-year USD 3.7 billion program with the IMF which the country entered into in December 2018. That said, the controlled adjustment came under pressure in recent weeks as downward pressure to the kwanza mounted amid a widening foreign exchange supply deficit in the Angolan market. This was chiefly due to sliding oil revenues amid falling crude oil production and faltering global crude prices, as well as declining sales of foreign currency by the Central Bank amid shrinking reserves. As a result, the rate of depreciation accelerated in early October.
Going forward, the kwanza is seen weakening further, although the authorities are likely to cap the depreciation in order to avoid significant currency volatility. With the difference between the parallel and official exchange rates at its narrowest in October since the beginning of the year—reportedly shrinking to just over 33.0%— this gap is expected to continue narrowing next year.