Angola Exchange Rate August 2018

Angola

Angola: Kwanza slides in H1 amid controlled adjustment of the exchange rate regime

August 20, 2018

The Angolan kwanza began sliding at the start of the year after the Central Bank (Banco Nacional De Angola, BNA) introduced a new exchange rate regime on 9 January. The Bank abandoned the previous system of a pegged exchange rate where the value of the kwanza was determined by the BNA notwithstanding demand and supply dynamics, in favor of adopting a trading band with a floor and ceiling price. In the months following its implementation, the BNA began a controlled adjustment of the exchange rate with the aim of gradually eliminating the difference between the official exchange rate and the black-market rate. As a result, the trading band has been determined by auctions organized by the BNA where participating commercial banks present bids for euros in local currency. To mitigate risk of substantial depreciation, the BNA introduced rules so that bids can fluctuate within a plus/minus 2.0 percentage point band around the average exchange rate of winning bids of the previous auction. As a result, the Bank has de facto capped the maximum depreciation of the exchange rate against the euro at 2% per auction.

During its latest auction held on 13 August, the National Bank of Angola provided commercial banks with EUR 35 million with a weighted average exchange rate of AOA 306 per EUR. This represents a weakening of 1.67% from the previous auction held on 31 July when the Bank sold over EUR 348 million to commercial banks. In U.S. dollar terms, on 13 August the currency cost an average of OAD 268 per USD in the auction, down 6.1% month-on-month. Furthermore, the currency was down 61.5% year-to-date and in year-on-year terms. As a result, the difference between the official and black-market exchange rates has contracted significantly since the beginning of the year. Nevertheless, the gap remains substantial: At the beginning of August the kwanza traded at AOA 380 per USD in the parallel market, according to local media reports.

A transition to a flexible exchange rate system has been one of the key pillars of the Macroeconomic Stabilization Program pursued by the President João Lourenço. Together with fiscal deficit reduction and public debt consolidation, a flexible exchange rate regime is expected to help reduce macroeconomic imbalances and place the country on a stable growth trajectory in the long term. Along with the transition towards greater exchange rate flexibility the Central Bank adopted a new monetary policy framework where it targets base money in accordance to the inflation objective. The overhaul of monetary and exchange rate policies plays a vital role in rebalancing the foreign exchange market and containing inflation. However, to complete the transition to a fully free-floating exchange rate regime, the Bank of Angola will have to implement further reforms to the current mechanism, including the elimination of direct sales to priority sectors.

FocusEconomics panelists expect the Angolan kwanza to end this year at 258.3 per USD and 2019 at 282.61 per USD.


Author:, Economist

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Angola Foreign Exchange August 2018 0

Source: Angolan National Statistical Institute


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