Angola should let its currency float, International Monetary Fund officials said on Tuesday during a visit to the southern African country, where authorities have kept the kwanza in a tight range for months.
The government let the kwanza drop by more than one-third over May and June, with analysts linking the move to lower oil revenues and a resumption in external debt payments making it harder for it to prop up the currency.
But since early July the kwanza has traded in a narrow range around 830 against the U.S. dollar AOA=. Bloomberg News reported last week that the central bank had stepped up restrictions on foreign-currency trading to stop the kwanza from weakening further.
“Our recommendation is for the country to keep up with the floating exchange rate. This is extremely important for Angola, since the floating rate works like a shock absorber for relevant external events,” the IMF’s resident representative for Angola, Victor Lledo, told a news conference in the capital Luanda.
“There are persistent exchange rate pressures, they are related to fundamentals. … Countries should allow the exchange rate to adjust and to depreciate,” said Catherine Pattillo, deputy director at the IMF’s Africa department.
Angola’s inflation AOCPIY=ECI slowed sharply in 2022 and over the first half of the year, but in the wake of the kwanza’s May-June depreciation it has picked up again.
The Bank of Angola lowered its main interest rate AOINTR=ECI in March but has kept it on hold at the three meetings since. It is scheduled to next review its monetary policy next month.
