Rwanda market update

Rwanda's financial markets have been experiencing a mix of dynamics as the year draws to a close. The equity market has shown improved liquidity in the money market, with the 7-day interbank rate settling at 8.3 per cent. CNBC Africa recently interviewed Kevin Karobia, Senior Investment Analyst at BK Capital, to gain insights into the market's current trajectory as the festive season approaches. The fixed income market has been a focal point of interest, with a surge in investor activity. Short-term fixed income instruments, particularly treasury bills, have witnessed consistent oversubscriptions, reflecting investors' eagerness to capitalize on prevailing higher returns. Conversely, the equities market has seen subdued activity this month, with dwindling turnover volumes compared to previous periods. While investors in equities have been relatively quiet, there has been a notable uptick in engagement within the fixed income space. Amidst these market movements, key economic indicators are painting a positive picture. Inflation, a critical measure, is showing signs of easing, currently standing at 9%, nearing the target range set by the BNR of between 2% and 8%. Notably, the primary driver of inflation, food prices, has displayed a downward trend, with the Vegetables Index witnessing a significant decline of approximately 9.4%. The anticipation of improved agricultural production towards year-end is expected to further alleviate inflationary pressures, guiding it towards the central bank's target range. While the currency market continues to face significant strain, with the Rwandan franc experiencing substantial depreciation, the recent inflation moderation could offer some respite. The sustained current account deficit has been a primary factor contributing to the currency's devaluation. However, the reduced inflation rate may enhance the attractiveness of Rwandan investments in terms of real returns, potentially stabilizing the currency as it entices more investors into the market. Central banks regionally are also leveraging monetary policy tools to bolster investment appeal and attract foreign capital into their respective economies. The Rwandan franc's weakening against the US dollar, with a 0.3% decline to 1,250 Rwandan francs, underscores the currency's challenges. Despite efforts to enhance domestic production to curb depreciation, the high value of the dollar and prevailing trade imbalances are exerting continued pressure on regional currencies. The year 2023 has been particularly demanding for the Rwandan franc and other regional currencies, with expectations of ongoing strain against the strong dollar index above 104. On the liquidity front, Rwanda's financial markets have exhibited robust volumes, surpassing previous year levels. The interbank rate has plateaued at 8.3%, maintaining stability since the rate hike in August. Projections suggest this trend will persist given the unfolding monetary policy actions. The repo rate, currently at 7.5%, is expected to remain steady in the near term, subject to upcoming economic indicators in the first quarter of 2024. In conclusion, Rwanda's financial landscape is navigating through a series of challenges and opportunities as the year progresses. While the equity market showcases promising liquidity improvements, the fixed income segment is witnessing heightened investor interest. With inflation showing a downward trajectory and the currency market grappling with external pressures, strategic policy measures will be pivotal in steering the economy towards stability and growth. As investors assess the evolving market dynamics, the outlook remains cautiously optimistic, awaiting further developments in the coming months.