26 March 2019

Rwanda: Central Bank Allays Fear on Franc's Depreciation

Photo: The New Times
Rwandan franc.

The Central Bank has said that the depreciation of the Franc against the dollar currently being witnessed was expected and would remain moderate throughout the year.

The Rwandan Franc against the dollar has been depreciating beginning late 2018 from about Rwf 880 (for a dollar) and is currently standing at about Rwf 900 in the market.

The value of the dollar against the franc has been on an upward trend for the last two years moving from about Rwf852 in 2017 to Rwf883 by December 2018.

The recent trends have caused concern among a section of the public.

However, the regulator has allayed fears saying that it was expected and remains moderate.

In an email response to Business Times on the issue, the Central Bank said that the trends are largely driven by the structural trade deficit between imports and exports of goods and services.

"We expect the improvement the country has observed in export sector to carry on, however, imports are expected to increase in support of economic growth performance, therefore the Franc will continue to weaken against the dollar but will remain moderate," the statement reads.

The central bank expects that, though the country's trade deficit remains, the situation cannot escalate to the extent the local currency had to experience in 2015 and 2016, which saw the dollar rate hit 7.6 per cent and 9.7 per cent respectively, citing the tides.

"Looking at the trend the dollar will continue to strengthen against the Rwandan Franc but the situation will not be the same as the one recorded in 2015 and 2016 (7.6 percent and 9.7 percent) due to the improvement in the export sector driven by the recovery of the global demand," the statement added.

However, the officials could not rule out the behaviour of the dollar on the international market due to the actions of the Federal Reserve which has increased the interest rate for borrowing at 0.25 per cent quarterly for the past three quarters.

"The actions of the Central Bank of America in response to the performance of the American economy cannot be ruled out as our imports are dominated by the dollar, so the increase in dollar value will always have a negative impact on the exchange rate," an official said.

Meanwhile, the Central Bank committed that it will always intervene to try to normalise the situation using the available resources but asserted for the country's currency to have a favourable relationship with the dollar the export sector should continue growing in value and volumes.

The dollar is now trading between Rwf900 and Rwf905 according to a mini-survey across city forex bureaus.

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