2 October 2012

Rwanda: Central Bank Steps in to Limit Depreciation

The National Bank of Rwanda (BNR) injected US$375.3 million in the foreign exchange market between January and August this year, in one of its biggest attempts to save the Rwandan Franc from further deprecation.

The central bank's intervention was aimed at controlling the escalating scarcity of the US dollar and increasing demand for the Rwanda Franc, which depreciated by 2.9 per cent against the greenback in the period under review.

So far, the amount of dollars that have been sold in the foreign exchange market by the central bank is higher than the US$327.8 million that was injected in the entire 2011.

The Rwandan Franc has been weakening against the dollar throughout the year partly because of the increasing speculation by market players as well as the country's rising demand for imports.

Rwanda's imports increased by 15.3 per cent and 25.6 per cent in value and volume respectively, largely on account of soaring shipments of construction materials especially cement.

According to central bank, cement accounted for 75 per cent of the total construction materials that were imported from January to August this year. Local production is too low to cater for the booming construction industry.

Traditionally, when the dollar is scarce on the market it means more Rwandan Francs are needed to purchase the dollar in order to finance imports. This pushes the value of the dollar higher and in some cases increase imported inflation.

Rwanda's imported inflation rate stands at 1.2 per cent from 8.6 per cent end last year, while domestic inflation as of August it stood at 7 per cent

"This can be contained easily...our inflation is low, depreciation is moderate," central bank Governor, Claver Gatete said.

He assured that the condition under which the depreciation of the Franc would affect inflation is insignificant.

The central bank recently held a meeting with commercial banks, forex dealers and forex bureaus to discuss the problem of scarcity of dollars as well as drafting solutions to limit market speculation.

"People are taking advantage on the demand for import and we can not address the issue of speculation by pumping in money," Gatete said.

"There is no shortage of money anywhere, not in bureau de exchange or banks because we know the situation of all banks and their correspondences."

Gatete says that in collaboration with Ministry of Trade and Industry, the central bank intend to conduct countrywide campaign on illegal forex exchange dealing which is partly blamed for the depreciating Franc.

He however allayed fears that the recent decision by some of the development partners to delay or suspend aid disbursement would affect the foreign exchange market.

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