CBS warns against speculation on foreign exchange rates |08 September 2020

Governor Abel (Photo: Joena Meme)

By Laura Pillay

Demand for foreign exchange continues to increase as compared to supply, despite the Central Bank of Seychelles’ (CBS) repeated call to minimise demand as a means to stabilise the foreign exchange rate.

Governor of CBS, Caroline Abel, explained during a press conference at ICCS yesterday morning that, despite some stability in the market, CBS is concerned about the continuous depreciation of the Seychelles Rupee (SCR) as a result of consistently high demand, seizing the opportunity to also warn against speculation in the foreign exchange market and policy-action by CBS.

“The market is mainly stable, but there are certain elements which are of concern to CBS. The foreign exchange rate is a concern to us as it affects our general objective, which is to maintain domestic price stability,” Ms Abel noted.

“Speculation is dangerous, as it can be realised. We need to think, if tomorrow one USD ($) is sold for R24 on the market, everyone will be affected by this reality as commodities imported into the country will cost more, so we need to think carefully before we get involved in such practices,” Ms Abel stated.

Over recent weeks, CBS received a number of calls enquiring about an alleged agreement in place to purchase USD ($) from persons working with tourist delegations at R24 per USD ($), an agreement which does not exist in a free market economy where the foreign exchange rate is flexible, and foreign exchange transactions are effected through commercial banks and bureaux de change, Ms Abel stated.

Speculation on rates have wide-reaching consequences, the impacts of which will not be equally felt. To address the depreciation of the rupee and speculation on the foreign exchange rate, CBS can react by tightening the monetary policy at the disadvantage of persons and businesses making loan repayments, who would be subject to higher interest rates.

As of Friday September 4, on average, the exchange rate stood at US $18.64 and EURO (€) 21.84, representing a 1.2 percent increase in the rate of USD as compared to August 27, and slight decrease of 0.5 percent in the rate of EURO.

In terms of how much foreign exchange is flowing in and out of the market, statistics recorded by CBS indicate that demand has remained consistently higher than inflow, with demand at US $9.2 million, as compared to inflow at US $7.4 million last week, August 27 to September 3.

The foreign exchange reserves position remains unchanged as at Thursday September 3, with the Gross International Reserves at US $585 million, of which US $438 million can be used.

Moratorium and debt-restructuring

Earlier this year in March, CBS announced moratorium and debt restructuring facilities for individuals and business organisations facing financial difficulties during the economic downturn, resulting from the Covid-19 pandemic and subsequent standstill in the tourism industry.

Ms Abel yesterday noted the prolonging of the measures where client’s financial situation warrants the benefits and support. Customers are advised to liaise with their bank, the Development Bank of Seychelles (DBS) or Seychelles Credit Union (SCU) to know when they are to re-start repaying loan facilities and the requirements if they are seeking a further extension on their moratorium.

New applications are still being entertained for individuals and businesses that are only now feeling the impact of the pandemic. The moratorium of up to 3 months applies for individuals and up to 6 months for businesses on repayment of principal and/or interests on loans, based on their financial situation.

Private Sector Relief Scheme (MSMEs)

From May until August 31, 254 applications to a sum of R112.4 million had been received under the Private Sector Relief Scheme targeted towards micro, small and medium enterprises (MSMEs), 59 of which are pending to a sum of R56.3 million. Thus far, 55 applications have been rejected due to failure to meet security requirements or not meeting the parameters for the loan, geared towards assisting businesses with finance, primarily for day-to-day operating expenses including salaries, utilities, rent, insurance payments, and such. A total of 121 applications have been approved to a sum of R37.3 million.

Businesses most affected operate in the tourism industry, transportation which includes car hire operators and taxi drivers.

Of the 254 applications, 154 applications were lodged by micro enterprises to a sum of R29.3 million, 21 of which are still pending totalling up to R8.9 million, and 42 of which were rejected. Nine requests were withdrawn and a total of 81 approved to a sum of R15.7 million.