OPEC's Angola Ditches Dollar Peg as Kwanza Falls at Auction

(Bloomberg) -- Angola devalued its currency as the OPEC member sought to revive an economy still reeling from the oil-price crash four years ago.

The kwanza fell 11 percent to 187.95 per dollar by 3:35 p.m. in Luanda and depreciated 10 percent to 221.75 against the euro. The move came a day after the central bank allowed the currency to weaken in its first auction of foreign exchange since announcing it would end a dollar peg that’s been in place since April 2016. Bids from commercial banks in the auction ranged from 217 per euro to 231, according to a person with knowledge of the matter.

Africa’s second-biggest oil exporter joins a long list of commodity producers, from Russia to Kazakhstan and Nigeria, that have floated or devalued currencies in a bid to end crippling shortages of dollars and stop bleeding reserves. Angola’s cash pile more than halved since 2014 as it tried to defend the peg.

“Angola has finally adopted a new currency regime, which seemed inevitable given the imbalances facing the country due to weaker oil prices and the growing pressure on foreign-currency reserves,” said Victor Lopes, an economist in London at Standard Chartered Plc. “The new regime will be a managed float. This is a major change in terms of economic policy.”

The move is part of President Joao Lourenco’s efforts to attract investment just three months after replacing Jose Eduardo dos Santos, who ruled the former Portuguese colony for almost four decades. Lourenco, who used to be a minister, inherited an economy beset by the plunge in revenue from oil -- which accounts for almost all Angola’s exports -- and widespread corruption.

More to Come?

Angola may have to weaken the kwanza further if it’s to close the gap with the black-market rate, which fell to 430 per dollar as hard currency in the import-dependent nation dried up. While Brent crude prices are still well below levels of mid-2014, their increase of more than 50 percent since June to almost $70 a barrel probably led Angola to weaken the currency by less than it would have otherwise done, according to Absa Bank Ltd.

“A 10 percent devaluation was probably much less than the market was expecting,” said Samantha Singh, a Johannesburg-based strategist at Absa, citing quotes for kwanza one-month non-deliverable forwards of 190/218 per dollar on Tuesday. “Unless oil prices continue to rally, further currency adjustments are warranted.”

On Tuesday, the Banco Nacional de Angola sold 83.65 million euros ($100 million) at an average rate of 221.26 kwanzas per euro. Most of the funds were allocated for imports of raw materials, factory parts and equipment, the bank said. Angola’s last auction had been in early November, when it sold euros at 186.3 kwanzas each. The European currency has since strengthened by more than 3 percent against the dollar.

The central bank has mostly auctioned euros in the past two years because international lenders are reluctant to provide the southern African nation with dollars, given the perceived risk of violating anti-money laundering laws. Angola ranks among the 20 most corrupt countries in the world, according to Berlin-based Transparency International.

To contact the reporters on this story: Henrique Almeida in Lisbon at halmeida5@bloomberg.net, Candido Mendes in Luanda at cmendes6@bloomberg.net, Paul Wallace in Lagos at pwallace25@bloomberg.net.

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net, Alex Nicholson, Ana Monteiro

©2018 Bloomberg L.P.