Kwanza drops as Angola ditches dollar peg

The kwanza marked lower yesterday ahead of an expected devaluation, as Angola was set to become the latest country to ditch its US dollar peg.

The Banco Nacional De Angola (BNA), which walks in step with government policy, said last week it was switching from a currency peg to an as-yet-undefined trading band due to its depleting foreign reserves, which have more than halved since 2013 to US$14 billion due to a slump in global oil prices.

Yesterday the kwanza was marked 0.8% lower before a forex auction due to be held under new rules.

The currency is pegged at around 165 per US dollar but trades on the black market at around 400. Authorities are expected to allow the kwanza to float in a target band.

Regis Chatellier, a strategist at Societe Generale, said the reform would be positive for Angola but was sceptical on how free floating the kwanza would actually be.

"With these countries, there are always a lot of good intentions. We saw that with Nigeria for example, the currency was floating or at least it was supposed to be that way, but the bottom line was it was not floating as much as people wanted. We could have a similar issue here," he said.

Johannesburg-based brokerage NKC suggested the currency could overshoot to the downside if markets perceive the new rates as still overvalued.

"To maintain credibility ... [the central bank] would then need to inject foreign exchange into the system. However, [authorities'] ability to defend the unit is constrained by the low level of foreign reserves," NKC wrote.

Bond

Angola's US dollar bond maturing in 2025 fell yesterday, extending the previous day's losses ahead of the expected devaluation in the kwanza.

The bond, which has US$1.5 billion outstanding, lost 0.54 US cents to trade at 116.05 US cents, according to Thomson Reuters data.

Two banking sources said the Central Bank of Angola (BNA) would have held a foreign exchange auction yesterday, the first since it announced a shift away from a the peg.

The auction was supposed to take place on Friday but it was delayed, the sources said, adding that they expected the kwanza to depreciate between 20% and 30% under the new rules.

Debt

The government is also looking to renegotiate billions of US dollars owed to multinational lenders such as the International Monetary Fund or foreign governments including China, which has huge oil-for-infrastructure deals with Luanda.

The BNA is set to settle the remainder or its approximately US$390 million debt to the Bank of Namibia (BoN) by June this year.

The debt stems from the currency exchange agreement between the two countries in June 2015. This resulted in a massive capital outflow from Angola. The BNA subsequently struggled to repurchase kwanza from the BoN on a monthly basis due to foreign reserve pressure and a new repayment schedule was negotiated.

BoN Governor Ipumbu Shiimi said in October the BNA repaid about US$150 million. Another payment of US$51 million was due in December, which leaves US$189 million more to be paid by June this year. – Nampa/Reuters and own reporting