Angola limits weight of the dollar in the economy to fight inflation

22 August 2011

London, United Kingdom, 22 Aug – Reducing the weight of the dollar on the economy and increasing the use of Angola’s currency, the kwanza, has become one of the main aims of the National Bank of Angola, said the Economist Intelligence Unit.

The aim, the EIU said in a report about the Angolan economy, is to improve the effectiveness of monetary policy and reduce inflationary pressure, after years of not reaching the target to reduce inflation to single digits and at a time when inflation stands at around 14.5 percent.

The BNA’s latest measure to increase the use of the kwanza was in June to increase restrictions on providing loans in foreign currency.

Retail banks and financial institutions in Angola are banned from providing loans in foreign currency, although some exceptions are allowed, specifically for state institutions and companies with revenues and loans in foreign currency and to fund long term investments.

The measure was announced by the BNA with a view to reducing excessive dependence on US dollars, the supply of which is subject to fluctuations in exports and in foreign debt, the EIU said.

The measure is the most recent in a number of activities carried out by the governor of the BNA, José Massano, in order to reduce the “dollarization” of the economy and encourage the use of the kwanza, it said.

By providing loans in foreign currency, it is as if the banks are becoming involved in the creation of money, over which the authorities have no control, thus leaving the domestic economy exposed to significant volatility, the report said.

The International Monetary Fund (IMF) recently raised its 2011 inflation forecast for Angola from 11.3 percent to 14.6 percent.

The government projects that inflation will fall to 12 percent and Portuguese bank BPI expects it to be around 13 percent.

Angolan inflation is also imported, given the foreign dependence of around 90 percent of the consumer price index, and as a result of delays in imports and distribution of goods at customs.

Another measure implemented by the BNA to promote use of national currency, in November last year, was to restrict commercial banks to having a minimum of 80 percent of their capital denominated in kwanzas by 2012.

A month later, the BNA restricted the acquisition of foreign currency by Angolan residents to US$5,000, or US$15,000 for those travelling abroad.

According to the EIU, the demand for dollars remains high, despite repeated calls by the central bank to favour the use of the kwanza.

The bank’s conditions to support the kwanza are positive, as it had foreign reserves of around US$21.1 billion in April, as a result of a rise in oil exports.

In the first quarter of the year, the dollar-kwanza exchange rate remained stable, at around 93.50, according to the latest report from BPI. (macauhub)