In the face of challenging economic trends, the Rwandan franc depreciated by 8.8 percent against the US dollar in the first six months of 2023, according to the National Bank of Rwanda.
This was announced on September 20, during a presentation of the Monetary Policy and Financial Stability Statement by the central bank that assessed the economic performance of the first half of the year and prospects for the rest of the year.
John Rwangombwa, Central Bank Governor, said that it is the first time in 20 years that Rwanda has recorded a double-digit depreciation, with an overall total of more than 12 percent currently.
He attributed the mismatch between supply and demand for dollars to the widening of the trade deficit, which was at 23 percent in the first half of the year, drawing from an 18.5 percent increase in import bill against export earnings, which increased by 11.2 percent.
“It is an unusual pressure, but we believe it will ease next year because we can see a decreasing trend in imports and increase in tourism revenue, among other avenues generating forex receipts,” Rwangombwa noted.
The greenback is typically used as a major medium of commodity exchange globally, which means that once its demand goes up, so does its value.
With the exception of the Eurozone, Rwanda’s imports are mostly bought in dollars; hence, if traders buy goods at high prices, they will be expensive for domestic consumption.
Figures from the central bank also indicate that the Rwandan franc also lost value against other major currencies, including a decline of 13.9 percent against the pound, 10.7 percent against the euro, and a lower appreciation of 0.4 percent against the yen, after respective appreciation a year before.
Within the region, the currency appreciated by 4.5 percent against the Kenyan shilling and by 20.2 percent against the Burundian franc but weakened by 5.1 and 10.0 percent against the Tanzanian shilling and Ugandan shilling, respectively.
However, in real terms, the franc actually gained 1.3 percent value due to high domestic inflation outpacing the combined effect of weighted foreign inflation and nominal effective depreciation, according to the central bank.
“It’s worth noting that this franc appreciation was slower than the 7.6 percent appreciation recorded at the end of June 2022. With an appreciation of the real effective exchange rate, domestic products remain less competitive compared to foreign goods,” it stated.
By the end of June 2023, BNR’s international reserves had reached a level equal to 4.4 months of expected imports of goods and services, which is higher than the benchmark.
Major economies, including Brazil, Russia, India, China, and South Africa, collectively known as BRICS, strive to reduce their dependence on the US dollar through a process called de-dollarisation.
