The forex market has experienced interesting trends this year, with the central bank at one time using punitive measures to reign-in what it called ‘errant and speculative’ dealers. This was after the local currency touched lows of over Rwf800 against the US greenback in July.

The regulator also banned all transactions in foreign currency as one of the efforts aimed at reducing demand for the US dollar to ease pressure that was mounting on the Rwanda franc. Earlier, the local currency had shed 0.85 per cent in January, but bounced back in February losing only 0.52 in February, according to the National Bank of Rwanda (BNR) data.

The central bank quoted the franc at 687/701 per dollar (buying and selling) at the beginning of January, closing the month lower at 693/707. In February, BNR quoted the dollar at Rwf696.9/710.9 at the end of February, up from Rwf693.5/707.3 on February 1. However, the local currency was to face more pressures driven by dollarising the economy that created ‘unnecessary’ demand for dollars, according to BNR. A growing number of landlords and service providers were, for instance, quoting their rate in dollars, creating demand that could have been avoided. This was why BNR banned charging for services in any foreign currency, which helped ease pressure on the local unit. 

Averagely, in the retail market, the franc was stable at 706/710 for the first two months of the year, but by the end of March it grew to a mean of 715/725 against the dollar. The central bank also attributed the pressure on the local unit to high demand for forex from importers, which it said was growing faster than the increase in forex inflows. Generally, the dollar was appreciating against all major currencies and not only against the franc.

During the second quarter of the year, the central bank quoted Rwandan franc at 703/717 per dollar at the end of April, a marginal decline from 701/715 at the beginning of the month. Commercial banks and forex bureaus quoted it an average of 720/725 over the period, and was trading at 712/726 at the end of June compared to 701/721 at the beginning of the month.

It was to decline marginally to 716/730 at the end of July from 712/727.

Speculation hurts franc

However, in the retail market the franc traded at as high as 750/800 per US dollar, with some forex bureaus claiming that there was scarcity of dollars in the market. The central bank dismissed the claim, with the governor John Rwangombwa issuing a strong warning against speculators.

"Under normal rates, you should not pay over Rwf750 per dollar; anything more than that is an artificial rate caused by speculators,” he said at the time. Since then, the franc had been range-bound, depreciating at a much lower rate compared to the July-August period when speculation and dollarisation of the economy were highest.

From the lows of 800 in July, the central bank quoted local unit at 738/752 to the greenback on Wednesday last week, down from 734/749 at the beginning of December. Commercial banks were trading at the US currency at an average of 750/778, selling and buying.

BNR said on Wednesday that the exchange rate has remained fundamentally market driven this year, noting that the franc depreciated by 7.1 per cent against the greenback this year, the biggest drop in five years since 2010. It, however, appreciated by 4 per cent against the euro, and most regional currencies. "The current depreciation is within the economic fundamentals of our economy after we eliminated speculators from the market,” the central bank, John Rwangombwa, said on Wednesday.

Tough times ahead?

According to experts, regional economies are headed for tough times next year after the US Federal Reserve raised interest rates by 0.25 per cent.

Already marginal losses in the regional currencies as dealers adjust to market sentiments have been spotted, experts say. The Kenya shilling moved marginally from the week’s opening of 101.90 to the dollar to trade at 102.50 mid-last week. The Ugandan shilling, which has shed 18.8 per cent against the dollar since the beginning of the year, gained to Ush3, 3,400/3,410 to the dollar mid-week, after the central bank held bank rate. The Tanzania shilling traded at Tsh2162 to the dollar, having shed 0.25 per cent from its opening price.