Central Bank Rwanda keeps repo rate unchanged at 4.5%

Rwanda's Central Bank, the Monetary Policy Committee, has decided to maintain the key repo rate at 4.5 percent in their latest MPC statement. CNBC Africa had the opportunity to interview the Central Bank Governor, John Rwangombwa, to gain insights into the decision and the current economic landscape of Rwanda. The key theme of the discussion revolved around supporting economic recovery amidst the challenges posed by the COVID-19 pandemic. Governor Rwangombwa highlighted two key factors that influenced the decision to keep the repo rate unchanged. Firstly, the Central Bank's main mandate of ensuring price stability, with inflation remaining low and even negative in the third quarter, necessitated an accommodative monetary policy to boost economic activity and propel prices towards the medium target of five percent. Secondly, the Rwandan economy has shown signs of recovery, with significant growth recorded in the first and second quarters of the year. The economy was buoyed by fiscal measures, the successful vaccination campaign, and supportive monetary policies. As a result, the Central Bank aims to continue its supportive stance to aid economic recovery by maintaining the repo rate. Governor Rwangombwa identified the key drivers behind the low inflation in the third quarter, attributing it to a bumper agriculture harvest that led to a significant decrease in food prices and some base effects from the previous year. Moving forward, there are expectations of a gradual increase in inflation, reaching an average of 5.4 percent next year. The discussion further delved into the country's balance of payment position, which has shown improvement mainly due to higher global commodity prices and increased exports of manufactured goods to neighboring countries, particularly the Democratic Republic of Congo (DRC). Despite the challenges posed by the pandemic, financial institutions in Rwanda have demonstrated resilience, thanks to regulatory reforms that bolstered their capital and liquidity buffers. Governor Rwangombwa emphasized that the sector's performance is expected to remain strong, although there are concerns about the rise in 'watch' category loans indicating signs of distress. Addressing the issue of interest rates, the Governor noted a positive trend of declining average interest rates over the years, citing a current rate of around 16%. While he acknowledged that interest rates might not drop significantly in the short term, the overall trajectory is positive. Looking ahead, Governor Rwangombwa expressed optimism about the robust economic recovery and the better-than-expected performance of the economy and loan quality. He hinted at revised economic growth numbers that are anticipated to surpass initial projections, signaling a positive trend for Rwanda's economic outlook. In conclusion, the Central Bank's decision to keep the repo rate unchanged at 4.5% reflects a commitment to support ongoing economic recovery efforts and maintain stability in Rwanda's financial landscape.