The Rwandan franc has continued to depreciate against the US dollar despite expectations by the central bank that the local unit would recover some ground last month. The franc has so far depreciated by 0.85 per cent against the US dollar last month, according to January figures from the National Bank of Rwanda (BNR).
The franc was quoted by the central bank trading at Rwf693.4/707.2 (buying and selling) against the US dollar on January 30 compared to Rwf687/701.5 on January 2.
UAExchange, one of the leading forex bureaus in Kigali, quoted the franc at Rwf715/720 and Rwf704/710 against the green back, respectively, on the same dates. Commercial banks quoted the Rwandan franc at an average of 712/720 (selling and buying) on Friday, while the central bank quoted the unit at 694/708.
According to the central bank, the depreciation was largely caused by the dollar’s global rally, which had affected almost all other currencies; and increased demand for imports by Rwandans.
Last month, the euro and the Pound Sterling depreciated by six and two per cent, respectively, against the US dollar.
In the region, the franc’s performance is better compared to the other East African Community currencies. The Uganda shilling has shed 3.14 per cent, the Kenya unit 1.07 per cent, while the Tanzania shilling has lost 2.76 per cent over the same period.
“The depreciation of regional currencies, mainly the trading partner states, has contributed to the franc’s depreciation,” read the central bank statement.
The statement noted that as the country continues to develop, the demand for foreign exchange to import goods and services grows much faster compared to the increase in foreign exchange inflows, which exerts pressure on the franc.
Maurice Toroitich, the KCB Bank Rwanda managing director, told The New Times that the high demand for foreign currency to fund economic activities in the country has affected the local unit.
“The construction and manufacturing sectors are using more dollars to imports machines and other items to facilitate their work, which creates pressure on the franc. Besides, there are ordinary importers of consumer goods…All this pile pressure on the local currency because inflows of foreign currency from exports are very low,” he explained.
The International Monetary Fund Policy Support Instrument implementation report released in December shows that Rwanda’s import cover, which is the number of months of imports Rwanda’s reserves can pay for, could have fallen to 3.9 months by the end of 2014, from five months in 2013, and will slide further to 3.8 months in 2015 before rebounding to four months at the end of 2016.
This means that the country’s ability to finance its imports is declining.
Toroitich said until Rwanda generates more foreign currency by expanding its exports base, and devising import substitution initiatives to reduce importation of consumer products, the local currency will continue facing pressure from foreign currencies.
He was, however, hopeful that the local currency would start to recover lost ground in coming months.