CBS hopeful that foreign exchange rate will stabilise |09 May 2020
Governor Abel (Photo: Joena Meme)
Governor of the Central Bank of Seychelles Caroline Abel yesterday said that the institution remains hopeful that the foreign exchange rate will eventually stabilise, after recording an improvement in the supply of foreign exchange and a decline in demand over the last two weeks.
Speaking at the weekly press conference to update the public on the foreign exchange (FX) reserves policy and strategy, Governor Abel once again urged prudency so as to keep the trend whereby demand has fallen while supply has increased, so as to reduce the pressure on the economy.
She however noted no changes in the policy, which aims to prolong the country’s reserves for the longest time possible.
“If we consider the developments, especially for the month of May and towards the end of April, the amount of FX being exchanged is low and the demand as well is starting to reduce. This gives us some hope that we can reduce some pressure, although we are yet to reach that stage,” Governor Abel said.
The FX rate was sharply adjusted in April, but is relatively stable for the time being, she added.
“If we consider activities, foreign exchange itself, May 7, on average, USD ($) costs R18.08 and Euro (€) costs R19.45. If we compare this to March 31, it is a 28.3 percent depreciation on USD and 24.5 percent depreciation on the Euro. With time, the depreciations has tended to reduce, so if we consider April 30, it is 1.2 percent depreciation on USD while Euro has tended to appreciate by -0.7 percent,” she explained.
In terms of value, as of March 31 compared to May 7, this translates to R3.99 on USD and R3.83 on Euro. As compared to April 30, this represents R0.21 change on USD and a reduction of R-0.14 on Euro.
As for flows of USD, Governor Abel noted USD 5.8 million during the first week of April and demand stood at USD 5.2 million. The week of April 8, inflows was at USD 3.2 million while demand stood at USD 5.7 million. During the past week, from April 29 to May 6, USD 8.4 million has been supplied to the system while USD 5.8 million was in demand. Demand has been at its highest during the week of April 15 at USD 7.3 million and the week of April 22 where demand stood at USD 6.44 million.
Governor Abel emphasised that the trend needs to continue in order for the rate to stabilise, in the interest of economic stability, especially at a time when tourism, the key pillar of the economy, is at a standstill.
She also reminded the public that the foreign exchange rate impacts on inflation and buying power, in line with the mandate towards maintaining price stability.
Prudency will also contribute towards CBS’s efforts to prolong the country’s reserves, which is still as of yesterday projected to last 17.8 months.
“Since the last time we injected reserves into the system (the week of April 6) this has not happened again. The gross reserves position, as of yesterday (May 7) is $579 million, of which the Net International Reserves (NIR) is $428 million. In terms of how long it is projected to last, this has not changed and therefore remains at 17.8 months,” added Governor Abel.
“And as we know, the reserves of the country are a critical component to maintain economic stability and support the foreign exchange market. The authorities through the Ministry of Finance, Trade, Investment and Economic Planning and the CBS, we signed formally to make a request for financing from the International Monetary Fund (IMF). This request is expected to be considered by the board of the IMF today and it is for the value of US $31 million,” Governor Abel added.
Sourcing finance from external sources will aid towards sustaining the reserves at “a viable level” as well as helping towards sustaining demand in the domestic economy, at a period when there are barely any economic activities which are generating FX.
Asked about the possible risks of borrowing at this time, especially after Seychelles’ Fitch rating was downgraded to B+, Governor Abel assured that the government is considering options “in a very disciplined manner, as we are conscious of being heavily-indebted which is why the government is going with this financing gradually rather than in huge quantities”.
She further justified that it is unlikely that the travel industry will bounce back quickly and it is important that the country has sufficient resources to support itself on the road to recovery.
“The government while seeking external financing is very prudent in that element because we have to repay and we have to be mindful of that. This is why we requested, as a country you have a quota and at first the IMF was to grant only 50 percent of the quota but then when IMF was considering the whole worldwide situation, it considered 100 percent of the quota,” Governor Abel added.
Once again, she launched an appeal for more supply of FX from the private sector reserves, which according to data from commercial banks stands at US $563 million, although she noted that this has also reduced by US $9 million, which is representative of the obligations of different actors, in effecting salary payments, effecting payments to suppliers and other ‘normal’ transactions.
As part of its efforts to address price stability during these uncertain times, CBS met with the commerce sector to discuss how it, as well as commercial banks, can be of assistance to them and the public. Discussions with commercial banks are underway and Governor Abel assured that commercial banks have committed to contacting clients personally for discussions and possible assistance.
Governor Abel also yesterday announced that the CBS has taken a decision to do a press conference every Friday to provide updates on the foreign exchange and reserves policy, although another press conference is scheduled for Wednesday May 13 for more information to be provided about the line of credit at the disposition of the private sector during these uncertain times, brought about by the COVID-19 pandemic.
Laura Pillay