Rwanda: MPs Wary of Declining Value of Rwandan Franc

19 November 2021

Members of Parliament have voiced concerns over the rate at which the Rwandan Franc is depreciating against major international currencies, a situation that could potentially erode people's purchasing power.

They were speaking on Thursday, November 18, 2021, as John Rwangombwa, the Governor of the National Bank of Rwanda presented the Bank's 2020/2021 annual activity report to both Chambers of Parliament.

Senator George Mupenzi said that the prime objective of the monetary policy is to prevent price instability on the market and to foster economic stability.

The report indicated that the Rwanda franc further weakened in the year ending June 2021, compared to the previous year owing to high demand for foreign currencies to finance the country's imports including Covid-19 related control kits.

On the basis of year-on-year, the Rwandan Franc depreciated by 5.3 per cent versus the US dollar, higher than the 4.3 per cent recorded in June 2020.

"It is obvious that the Rwandan Franc has been declining in value over years either against the US dollar, the UK Pound or the Japanese Yen," Mupenzi said, adding that the depreciation was also recorded against regional currencies.

He asked whether the loss of value of the Rwandan Franc was responsible for the decline in people's purchasing power.

For instance, according to the Rwanda Pensioners' Association, a kilogramme of beans was Rwf31 in 1980, but now costs around Rwf500.

Currently, the Rwf50 coin can hardly buy something given the rising cost of living.

Other data estimate that in 2013, one US dollar was equivalent to about Rwf680. Currently, it goes for over Rwf1,000.

MP Jean Claude Ntezimana wanted to know the link between the depreciation of the Franc and the performance of the country's exports and imports.

Rwangombwa said that the value of a country's currency corresponds to the state of its economy.

Currently, he said, Rwanda is among rapidly developing countries, which needs to import many items to cater for investment and setting up factories.

Other factors, he said, include imports of food items occasioned by changing consumption trends.

"Because of this development speed, the goods and services we need to import abroad are increasing at a high rate. However, the foreign investments into the country to build its capacity so as to increase its exports move at a slow pace," he said.

He said the fact that the country's import bill far exceeds its export earnings, results in a situation where people who need the foreign currency to buy goods and services abroad are more than those who need the local currency to produce them for export.

The Central Bank report indicated that Rwanda's exports receipts increased by 16.4 percent to over $1,487 million (over Rwf1.4 trillion) in 2020-2021, up from over $1,277 million during the previous year.

However, it indicated that though imports increased by 9.8 percent, they far exceeded the country's export revenues as they amounted to $3,488 million (over Rwf3.4 trillion), up from over $3,204 million (about Rwf3.2 trillion) in the same period.

"If BNR decides to order banks or Forex bureaus that the Rwanda Franc must not depreciate, that would not be right because we would be giving it an 'artificial value,'", Rwangombwa said, indicating that it is economic fundamentals that determine the value of a currency.

Members of Parliament have voiced concerns over the rate at which the Rwandan Franc is depreciating against major international currencies, a situation that could potentially erode people's purchasing power.

They were speaking on Thursday, November 18, 2021, as John Rwangombwa, the Governor of the National Bank of Rwanda presented the Bank's 2020/2021 annual activity report to both Chambers of Parliament.

Senator George Mupenzi said that the prime objective of the monetary policy is to prevent price instability on the market and to foster economic stability.

The report indicated that the Rwanda franc further weakened in the year ending June 2021, compared to the previous year owing to high demand for foreign currencies to finance the country's imports including Covid-19 related control kits.

On the basis of year-on-year, the Rwandan Franc depreciated by 5.3 per cent versus the US dollar, higher than the 4.3 per cent recorded in June 2020.

"It is obvious that the Rwandan Franc has been declining in value over years either against the US dollar, the UK Pound or the Japanese Yen," Mupenzi said, adding that the depreciation was also recorded against regional currencies.

He asked whether the loss of value of the Rwandan Franc was responsible for the decline in people's purchasing power.

For instance, according to the Rwanda Pensioners' Association, a kilogramme of beans was Rwf31 in 1980, but now costs around Rwf500.

Currently, the Rwf50 coin can hardly buy something given the rising cost of living.

Other data estimate that in 2013, one US dollar was equivalent to about Rwf680. Currently, it goes for over Rwf1,000.

MP Jean Claude Ntezimana wanted to know the link between the depreciation of the Franc and the performance of the country's exports and imports.

Rwangombwa said that the value of a country's currency corresponds to the state of its economy.

Currently, he said, Rwanda is among rapidly developing countries, which needs to import many items to cater for investment and setting up factories.

Other factors, he said, include imports of food items occasioned by changing consumption trends.

"Because of this development speed, the goods and services we need to import abroad are increasing at a high rate. However, the foreign investments into the country to build its capacity so as to increase its exports move at a slow pace," he said.

He said the fact that the country's import bill far exceeds its export earnings, results in a situation where people who need the foreign currency to buy goods and services abroad are more than those who need the local currency to produce them for export.

The Central Bank report indicated that Rwanda's exports receipts increased by 16.4 percent to over $1,487 million (over Rwf1.4 trillion) in 2020-2021, up from over $1,277 million during the previous year.

However, it indicated that though imports increased by 9.8 percent, they far exceeded the country's export revenues as they amounted to $3,488 million (over Rwf3.4 trillion), up from over $3,204 million (about Rwf3.2 trillion) in the same period.

"If BNR decides to order banks or Forex bureaus that the Rwanda Franc must not depreciate, that would not be right because we would be giving it an 'artificial value,'", Rwangombwa said, indicating that it is economic fundamentals that determine the value of a currency.

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