The Banco Nacional de Angola in Luanda. Picture: REUTERS
The Banco Nacional de Angola in Luanda. Picture: REUTERS

Angola’s central bank has stopped using a trading band that kept the kwanza’s value within a fixed range, accelerating the currency’s slump, according to two informed sources.

The central bank of Africa’s second-largest oil producer last year introduced a rule that would not allow the kwanza to move more than 2% at currency auctions. It started allowing the currency to trade more freely at some auctions earlier in October, said the sources, who asked not to be identified because they are not allowed to speak to the media.

The kwanza has weakened 18% so far in October to 453 a dollar, the worst performance among more than 140 currencies monitored by Bloomberg, and extending its fall this year to 32%. Asked if the central bank had stopped using the trading band over the past month, a spokesperson for the Luanda-based lender said that was “correct”. 

The kwanza began a sharp depreciation after the central bank started holding daily auctions of $10m each on October 9, according to the results of these auctions on the National Bank of Angola’s website. In theory, the central bank ended the trading band earlier this year, but continued to impose the rule at its regular auctions to limit the depreciation of the kwanza, one source said.

The monetary policy committee is expected to hold an extraordinary meeting on Wednesday to fine-tune “measures and instruments of monetary and exchange rate policy”, it said on Sunday.  The bank has cut its benchmark rate by 250 basis points in the past 18 months to 15.5%.

The meeting, originally scheduled for the end of November, takes place amid a persistent gap between the street and official exchange rate, which is trading at 600 to the dollar, according to Maria Chiminha, an informal trader in Luanda.

The International Monetary Fund (IMF), which in March approved a $3.7bn loan programme for Angola, has urged the country to pursue further exchange-rate flexibility to facilitate market-based price formation. The country abandoned its currency peg last year.

“The excess FX demand, indicated by the widening of the official-parallel exchange rate spread, will be resolved only when the exchange rate freely adjusts at every auction,” the IMF said on June 12. “The existing restrictions should be removed to facilitate market-based price formation and enhance exchange rate flexibility to better insulate the economy from external shocks.”

Bloomberg