Rwandan central bank downplays economic effect of weakening currency

Rwanda's central bank governor has said that the continued weakening of the Rwanda franc against the U.S. dollar is not a cause for alarm and may not have a significant effect on the Rwandan economy.

John Rwangombwa, governor of National Bank of Rwanda (BNR), made the remarks on Thursday while speaking at the monetary policy and financial stability statement presentation in the capital, Kigali.

"Rwanda Franc depreciation does not transform into inflation and our main concern is inflation. Our economy is not affected by the weakening franc against foreign currencies," he said.

Rwangombwa noted that despite volatility in the foreign exchange market, Rwandan economy remains resilient.

Rwanda's currency has been hammered by depreciation pressures since December last year and first half of 2016, and has fallen about 7.5 percent against the U.S. dollar. It's the highest depreciation recorded in Rwanda in last decades.

Much of the pressure has been fuelled by strong demand from importers and foreign-owned firms paying dividends. Investor sentiment has been further rattled by a widening current account deficit.

The Rwanda central bank attributes forex volatility to an increase of 3.3 percent growth in import receipts compared to the contracting export value by 2.4 percent as demand for dollars in the country continue to increase.

To support commercial banks, the central bank increased its sales to banks by 40.8 percent from 111.5 million U.S. dollars in June 2015 to 157.0 million U.S. dollars in June 2016.

According to the National Bank of Rwanda's monetary policy and financial stability statement, the financial sector continues to expand and to finance the private sector whereby the financial sector has grown at an average of 23 percent in the last five years.

The size of the financial sector, as measured by total assets, relative to GDP increased to 55 percent in June 2016, up from 53.8 percent in June 2015 and 38.4 percent in June 2011.

The banking sector, with largest share in total assets, continues to hold significant capital buffers and higher liquidity positions, way above regulatory requirements.

According to the statement, inflation increased to 4.5 and 4.9 percent in the first and second quarters of 2016 up from 1.0 percent and 2.0 percent the same periods last year.

The bank indicates total exports dropped in value by 2.4 percent in the first half of 2016 from 275.12 million U.S. dollars to 268.57 million U.S. dollars after a decline of 6.3 percent in the same period of 2015.

While minerals, tea, coffee and other exports contributed negatively by 36.6 percent, 5.7 percent, 9.2 percent and 0.9 percent respectively, export volumes increased by 16.5 percent in the same period.

However, imports grew by 3.3 percent in value from 1.134.10 million U.S. dollars to 1.171.25 million U.S. dollars a rise driven by capital goods and consumer goods.

The central bank says the economy is expected to grow by 6 percent as earlier projected after a 7.3 percent growth in the first half of 2016, mainly driven by growth in industry and services sectors by 10 percent and 7 percent respectively.

Source : XINHUA