UPDATE 1-Rwanda keeps rates unchanged due to currency worries

25 Sep

KIGALI, Sept 25 (Reuters) – Rwanda held its key repo rate at 7.50 percent to curb demand for foreign exchange, which could weaken the local currency and feed inflation, its central bank governor said on Tuesday.

Claver Gatete said that although the bank was encouraged by falling inflation rates in Rwanda and in the wider east African region and globally by Europe’s latest efforts to resolve the euro zone debt crisis, it decided to hold rates due to concerns about rising imports.

“There is a risk of very high imports which we have to deal with … we have to be cautious, especially now that we have to contain the demand for foreign exchange,” he told a news conference.

Policymakers had noticed higher-than-expected imports of capital goods, intermediary goods and energy, reflecting robust economic activity, he said.

But the increased imports also put increased pressure on the country’s franc currency, which has edged down 2.9 percent against the dollar so far this year.

While the depreciation had a limited impact on inflation, further growth in imports could have negative consequences.

“While the exchange rate remains market driven, the central bank will continue to intervene to smooth exchange rate volatility,” Gatete said.

The landlocked central African nation was the only country in east Africa that did not suffer last year from soaring inflation and steep currency weakening, faring better than its larger neighbour Uganda.

Gatete said the economy was in line to achieve growth of 7.7 percent this year. Year-on-year urban inflation fell to 5.81 percent in August from just over 8.3 percent at the end of last year. (Reporting by Jenny Clover; Writing by Duncan Miriri; editing by Jane Baird)

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