Nigeria’s decision to free its currency may push Angola to loosen controls on its own exchange rate, according to analysts. Angola’s central bank has allowed the kwanza to devalue by 35 percent over the past 12 months, but this hasn’t begun to bridge the gap with the black market rate, where dollars are selling at a 200 percent premium to the official rate. With Nigeria’s example, the pressure may increase on policy makers in Luanda to adopt more flexibility as the nation begins talks with the International Monetary Fund for a loan of as much as $4.5 billion.
While Angola isn’t ready for a float, it may take steps to align the official rate closer to the street rates, Ridle Markus, a Johannesburg-based analyst at the Africa unit of Barclays, said. The central bank may do this partly by reducing the level of its interventions in the market, he added.
“Following Nigeria’s decision to adopt a flexible FX regime, some countries may review their own foreign-exchange regimes and in particular, how much support they must provide,” Markus said by phone on June 20. “A country like Angola, for instance, has little reason why it would float the kwanza as the central bank has been devaluing the kwanza at regular intervals. If anything, it might go for a slightly more aggressive devaluation and less intervention given limited international reserves.”
IMF officials who visited Angola advised the country to limit the supply of local currency rather than manage its dollar price as a way of controlling price growth. “It wouldn’t be impossible for the IMF to stipulate as a loan condition that Angola move toward a more free currency system,” said John Ashbourne, an economist at the London-based Capital Economics. “The country may want to achieve that by moving in gradual steps than make a sudden move and risk a collapse.”
Angola’s foreign-exchange reserves have dropped to $24.4 billion in May from $34 billion in September 2013. The limited reserves and the lack of depth in the fixedincome market are keeping the nation from floating the currency, said Samir Gadio, head of African strategy at Standard Chartered Bank in London.
“Nigeria could afford to do it because its deeper markets can attract portfolio flows which will provide a degree of support to the currency,” Gadio said. “A country like Angola doesn’t have that luxury.”