East African Community central bank governors have attributed the alarming depreciation of their respective national currencies to a strengthening US dollar coupled with their countries’ weak export earnings due to low commodity prices on the international market.
The message was contained in a joint communiqué issued at the closure of their EAC Monetary Affairs Committee (MAC) meeting that was hosted by Tanzanian central bank governor Prof Benno Ndulu, on Friday, on the country’s archipelago of Zanzibar.
According to the statement, the governors praised their policy measures that they have implemented in recent weeks, such as tightening of liquidity flows and increased intervention in the foreign exchange market, which has reportedly helped to moderate exchange rate volatility.
However, in an apparent show of uncertainty, the governors cautioned that the region’s national currencies may continue to depreciate against the dollar if external factors beyond their control persist.
To avoid that, they underscored the need to compliment their policy actions with regulatory and other structural measures to attain long term stability of the regional currencies.
During the meeting, the governors agreed to enhance the convertibility of regional currencies through the implementation of an agreement signed last year to enable the process.
They also agreed to deepen intra-regional trade, as well as the promotion of the East African payment system, including engaging regional traders, to calm exchange rate volatilities.
In coming months, the governors agreed to continue monitoring exchange rate developments in the region and pledged to adopt coordinated measures to prevent the current situation from escalating further.
Apart from the currency depreciation, the governors also reviewed resolutions passed during their previous meeting that took place in Arusha, Tanzania, in February this year.
During Friday’s meeting, the governors lauded EAC national strong monetary policies for having helped ease inflationary pressures in the region, even as their efforts were boosted by lower world energy prices especially petroleum products.
The East African Community intends to have a single regional currency by 2024 with MAC playing the role of a steering committee to guide the partner states along by putting in place the right instruments.
However, during their meeting, the governors called for more commitment from the partner states if they are to have a single currency within a decade.
“Creation of a monetary union requires adequate preparation, commitment and unwavering support from stakeholders,” the statement said.
However, according to the communiqué, the governors noted that the countries are making good progress by implementing the key actions pledged under the East African Monetary Union (EAMU) roadmap.
“We have started implementing several areas under the EAMU, such as preparation to attaining a macroeconomic convergence during the transition period [to a monetary union], harmonisation of institutional, policy, legal and regulatory frameworks and convertibility of regional currencies,” the statement added in part.
According to the governors, the next step under the roadmap is negotiation among the partners for the establishment of institutions to support the monetary union, capacity building initiatives to ensure the region has a critical mass to successfully implement a monetary union.