The Rwandan franc depreciated by 0.87 per cent against the US dollar during the first six months of the year, compared with a 2.96 per cent decline over the same period last year.
The performance showed that the franc continued to lose value, but at a considerably slower rate. This reduced the pace at which businesses and consumers faced higher costs when exchanging francs for dollars.
The National Bank of Rwanda attributed the relative stability to reforms in the domestic foreign-exchange market and increased foreign-currency inflows from exports, remittances and foreign direct investment.
The reforms sought to channel foreign-exchange transactions through regulated financial institutions, improve transparency and strengthen the use of the Rwandan franc in domestic trade.
BNR also tightened regulations against unauthorised pricing and transactions in foreign currency. A business found pricing goods or services in foreign currency faces a fine of Rwf5 million for a first offence and Rwf10 million for subsequent violations.
Unauthorised transactions conducted in foreign currency attract a penalty equivalent to 50 per cent of the amount involved for a first offence and 100 per cent for subsequent violations.
The measures were introduced to reduce the unnecessary use of dollars and other foreign currencies in domestic transactions. Rwanda’s exchange rate remained market-driven, with the value of the franc determined by the supply of and demand for foreign currency.
The central bank also maintained foreign-exchange reserves to meet the country’s essential import and external payment requirements.
The reserves covered an estimated 4.2 months of imports at the end of June, remaining above the national benchmark of four months.
For businesses importing fuel, machinery, medicines and other products priced in dollars, the depreciation increased the number of francs required to pay foreign suppliers. The slower decline limited, but did not eliminate, the exchange-rate pressure faced by importers.
Exporters and households receiving remittances benefited when converting their foreign-currency earnings because every dollar produced more Rwandan francs.
Pressure on the currency was also driven by Rwanda’s trade deficit. The value of imports continued to exceed export earnings, widening the deficit by 13.8 per cent to $821.9 million during the first half of the year, from $722.3 million in the corresponding period last year.
The imbalance increased demand for foreign currency as importers purchased dollars to pay overseas suppliers.
Higher export receipts, remittances and foreign investment increased the amount of foreign currency entering the economy and helped moderate the franc’s depreciation, according to BNR.
The franc recorded different movements against other major currencies. It appreciated by 2.05 per cent against the euro after depreciating by 15.96 per cent during the corresponding period last year.
Against the Chinese renminbi, it weakened by 3.8 per cent, an improvement from the 4.88 per cent depreciation recorded over the same period previously.
The franc continued to weaken after the first-half reporting period. By September 18, one US dollar was trading at Rwf1,477.86, compared with Rwf1,458.08 at the end of last year. This represented a depreciation of 1.36 per cent since the beginning of the year.
Elie GATETE
RADIOTV10