The National Bank of Rwanda (BNR) has allayed fears over the loss of value of the Franc against the U.S dollar, saying it’s still moderate and within initial projections.
The regulator said exchange rate depreciation remains moderate, at about 1.48 per cent as of Monday this week and well line with projections of 5 per cent.
This comes at a time when a section of the public and traders were curious on the fate of the value of the dollar which is currently selling at Rwf901.3 according to central bank rates and trading at an average of Rwf908 in Kigali city forex bureaus.
Central bank governor John Rwangombwa said that the projected 5 per cent depreciation in 2019 reflects a stable exchange market and will not lead to any crisis.
The projected depreciation is largely due to demand and supply forces with the country is expected to need more dollars to finance the importation of capital goods and intermediary goods, vital for industrialisation.
“The 5 per cent reflects a stable foreign exchange market and is not at a level that would create any crisis. We do not expect any issues. As of today we are on 1.48 per cent and this does not lead to significant loss of value, you can see that the market continues to be stable,” he said.
Experts say that the depreciation, like in many other economies, could also have been influenced by international market trends, especially following a move by the American Federal Reserve which has increased the interest rate for borrowing at 0.25 per cent quarterly for the past three quarters.
This could influence the US economic performance and consequently countries importing in dollar values and transactions.
With most of imports being in dollars, an increase in dollar value could have effects of depreciation on the exchange rate, experts say.
The depreciation will not adversely affect the performance of firms as it does not influence inflation which is 1 per cent.
“When you look at our inflation for this year, today we are at 1 per cent and expect an average of 3 per cent this year, Rwangombwa said.
Prof Thomas Kigabo, the central bank’s chief economist, said that it’s also unlikely to affect the performance of companies as it does not exert significant pressure on the cost of production of a company.
By highlighting the depreciation rate and its projections, the bank aims to eliminate depreciation as a risk factor for firms operating in the country and be able to factor exchange rate changes in their planning.
The regulator also says they do not expect any speculative tendencies.
Speculative tendencies come about as a result of a few forex operators trying to take advantage of the trend by hoarding dollars and selling them at a higher rate.
This is, however, curbed through standard regulation of forex operations as well as selling dollars to financial players. It is estimated that between $4 million and $5 million is released into the market through the avenue.
“We do not expect any speculative tendency in the market; the 5 per cent is really forces of demand and supply. We are always ready to deal with any unusual behaviours in the market.
“We have regulatory regimes governing the market and do not expect any unusual pumping of dollars in the market,” the governor added.
Other measures previously taken to ensure standard operations, and ease impact of speculators and consequent artificial shortages include banning pricing of products and services in foreign currencies.
The regulations require that the public buys and sells foreign currency from licenced forex bureaus and commercial banks who hold a valid licence which should always be displayed at the business premise alongside rates.