25 September 2012

Rwanda: Franc Weakens Against U.S. Dollar

The Rwandan Franc weakened against the dollar over the last couple of months as traders increased demand for the greenback to finance the country's imports. Rwanda's foreign exchange reserves also slid to four months of imports from six months in June, this year, affecting the franc as it fell against the dollar.

In the first half of this year, the franc depreciated by 1.3 per cent against the dollar. The dollar was selling at Rwf612.43 compared to Rwf604.14 during the same period last year.

The dollar franc rate closed at 626/616 on Thursday last weak, according to central bank rates. In most of the exchanges bureaus around Kigali city, the dollar is selling at Rwf645.

The weakening of the franc was attributed to rising imports, which sparked high demand for the dollar.

Central bank says between July 2011 and July 2012, imports increased by 66 per cent. The Bank says this a period of the year when imports are at their highest levels.

Rwanda's export to import cover, excluding cross border trader stood at 27.8 per cent as of August this year.

"It's good for both fiscal and monetary purposes because it shows (investor) confidence in the economy," Amb. Claver Gatete, Governor of the Central bank said.

Almost 75 per cent of the goods consumed in Rwanda are imported.

To ease pressure on the franc, the central bank has had to intervene by selling foreign currency reserves to banks as well as issuing treasury bills and mopping up excess liquidity in the market.

"On the monetary purposes, recently, we had to mop up liquidity through increase of Key repo rate and through issuance of Treasury bills," Gatete said.

The situation is expected to stabilise in the next two months, he said.

James Kamushana, a forex bureau owner in Kigali said that the dollar has been rising from the end August to the beginning of this month.

"It (Dollar) is scarce and selling high but the good thing is that our Franc has not depreciated and traders are happy with it," he said.

Recently, the central bank warned the public against engaging in illegal foreign exchange transactions known as black market, which it said was partly responsible for the weak franc.

Meanwhile, the central bank says that credit to the private sector increased by 18 per cent with authorised loans reaching Rwf237.3 billion in the first six months of this year, up from Rwf140.7 billion in same period last year.

Outstanding liquidity amounted to Rwf215 billion compared to Rwf160.8 billion by end of 2011, of which treasury bills accounted for 53.3 per cent.

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