Demand for imports increase franc depreciation by 1.9 percent

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Demand for imports increase franc depreciation by 1

The Rwandan franc depreciated against the US dollar, the main global trading currency by 1.9 percent by end of June 2014, resulting from increasing demand for dollars to  purchase  imports which saw both their value and volumes go up in the forts half of 2014.

By end of June, the franc traded between Rwf670.08 in December 2013 and Rwf682.54 per dollar but appreciated against Great Britain pound-GBP by 5.3 percent and 1.0 percent versus the EURO while the dollar continued to gain against all the currencies.

Central bank says that Rwanda Real Effective Exchange Rate (REER) registered depreciation by 0.11 percent in June 2014 which was driven by a slight depreciation of the nominal value of the franc against some currencies of its major trading partners.

 The depreciation was also due to the increase of relative prices due to higher level of inflation in foreign countries relative to domestic inflation, the bank says

Financial experts say depreciation was as a result of demand for more dollars to finance imports whose value and volumes increased in the first half of the year. This means that more people were exchanging francs for dollars which lowers its value in real sense.

According to statistics from Central Bank, imports value   increased   by of 13.0 percent at the same time its volumes registering an increase of 0.9 percent in the first half of 2014 compared to the same period under review in 2013 thus widening the trade deficit by 17.4 percent from USD 765.4 million to USD 898.6 million.

When the trade deficit widens it means that   there are more things (imports) coming into the country which takes currency out to purchase them than things the country takes out (exports) which brings in more foreign exchange which balances the country’s trade.

“ Central bank  kept the franc exchange rate fundamentally market driven, while continuing to intervene on the domestic foreign exchange market by selling foreign exchange to banks to smoothen the FRW exchange rate volatility,” said John Rwangombwa, Governor of the Central Bank.

Nevertheless, the franc valued against Uganda, Tanzania and Kenya currencies by 2.5 percent, 5.3percent, 0.9 percent respectively before depreciating slightly against Burundian francs by 0.6 percent.

Experts say that the appreciation of the franc against regional currencies was due to their depreciation against the US dollar and the fact that the country’s trade   with its regional peers improved with exports amounted to USD 97.8 million by end of June up from USD 70.7 million in the same period under review in 2013.

Central Bank says that the banking system registered a rise in its both forex resources and expenditures of 14.8 percent and 6.8 percent respectively in June 2014 compared to last year June, which resulted into a cash excess of USD 25.4 million, pushing Central bank to cut down its forex sales to Banks to USD128 down from USD 158 that earlier projected.

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Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

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