"The BNA has taken decisive steps to improve exchange rate flexibility," congratulated the IMF in its detailed analysis of the second review of the Extended Financing Program, which will allow the country to receive 3.7 billion dollars by 2024.
IMF technicians consider this "shift to a market exchange rate to be a paradigm shift, with profound structural implications."
"Exchange rate liberalization will substantially reduce the risk of kwanza overvaluation and help allocate limited foreign currency reserves more efficiently".
In the part of the monetary policy analysis of the recent months, the IMF highlights the benefits of this measure, which has been widely contested at national level due to its impact on inflation, which is expected to peak by 2020, rising from an average of 16 percent this year to 24 percent, which has led to a depreciation of kwanza by about 30 percent since the beginning of the year.
"This should have beneficial effects on the effectiveness of monetary policy instruments, such as open market operations, needed to strengthen the nominal anchor, reduce the risk of distortion of financial intermediation, facilitate reserve accumulation, support external competitiveness and economic diversification and shorten the difference between the official and parallel rates", they point out in the document.
The depreciation of the kwanza should result in a minor impact on inflation as long as monetary and fiscal policies remain tight.
The BNA "is working to remove informal restrictions on foreign currency withdrawals, and by the end of this month will issue legal instructions that requires banks to give a written explanation to customers who are denied access to foreign currency deposits ", with penalties for defaulting banks.
On the other hand, the detailed analysis to the second review of the Extended Financing Program adds that "the authorities are considering a gradual removal of restrictions on capital accounts."
