Rwanda’s Central Bank maintains policy rate as inflation eases

Rwanda's economy is on track to experience a surge in GDP growth, surpassing 6.2 percent, as inflationary pressures show signs of easing. The country is witnessing a rebound in key sectors such as construction, tourism, and agriculture which are starting to normalize. In an exclusive interview with CNBC Africa, Rwanda's Central Bank Governor, John Rwangombwa, discussed the regulator's decision to maintain the key policy rate at 7 percent, emphasizing the efforts to address inflation and stabilize the economy. Governor Rwangombwa highlighted the central bank's commitment to implementing policies aimed at bringing inflation back within the target range of 8 to 2 percent. He discussed the impact of reduced oil prices on inflation, noting significant decreases in oil and core fresh produce inflation. Despite challenges in the food sector due to poor performance in season A, there are expectations for a decline in food inflation with the arrival of season B. Projections suggest a return of inflation to the target range by the fourth quarter, with the central bank's measures and government actions contributing to the downward trend. The Governor expressed optimism for inflation to remain below 5 percent even in 2020, indicating a positive outlook for Rwanda's economic stability. He mentioned that other countries in East Africa have also tightened monetary policies to address inflation, and Rwanda is on track to normalize its economic conditions. Key Points: 1. Inflationary Pressures: Rwanda is experiencing a decline in inflation due to reduced oil prices, with expectations for inflation to fall within the target range by the fourth quarter. 2. Credit Market: The country has seen an increase in lending, particularly in sectors such as trade, residential housing, personal loans, and manufacturing, with a stable lending rate overall. 3. Financial Environment: Rwanda successfully managed its Euro bond, utilizing favorable market conditions to refinance existing bonds. Despite current unfavorable market conditions, the country is unlikely to issue new bonds in the near future. Governor Rwangombwa discussed efforts to reduce dependency on the dollar in international trade, highlighting regional initiatives to promote trade using local currencies. He emphasized the gradual nature of this transition and the importance of intra-Africa trade to reduce reliance on external markets. The Governor acknowledged the challenges of macroeconomic convergence but expressed confidence in achieving partial convergence through strategic economic policies. Rwanda's economic soundness was reaffirmed by Governor Rwangombwa, citing strong growth in the services and manufacturing sectors. Despite agriculture's initial struggles in the first quarter, expectations are high for a better performance in the second half of the year. The construction sector, although slowed, is anticipated to pick up with significant projects in the pipeline. The Central Bank Governor also highlighted the growth in digital payment systems, indicating a shift towards digital channels for transactions. Rwanda is progressively digitizing its payment systems, witnessing increased volumes of transactions conducted via mobile platforms. This growth in digital payments aligns with the country's broader efforts to modernize its financial infrastructure. In conclusion, Rwanda's Central Bank's decision to maintain the policy rate reflects a strategic approach to stabilize the economy and address inflationary pressures. With a focus on key sectors and digital innovation in financial services, Rwanda remains poised for sustained economic growth and stability.