Rwanda monetary policy committee outlook

Rwanda's Central Bank is set to meet tomorrow to review the performance of the economy and assess the impact of the monetary policy stance adopted in August 2023. Kevin Karobia, Senior Investment Analyst at BK Capital, joined CNBC Africa to provide insights into the potential market direction ahead of the upcoming announcement. The focus of the meeting is on the possibility of maintaining or changing the current stance. Karobia expressed his expectation that the Monetary Policy Committee (MPC) will uphold the current stance by keeping the CBR at 7.5%. The decision is based on economic growth indicators, which showed resilience with a growth rate of 7.7% in the first half of 2023. Despite two previous rate hikes in February and August of 2023, the economy continues to expand. Additionally, inflation remains a key concern, standing at 11.2% in October, above the target range of 2 to 8%. The combination of striving to stabilize prices and support economic growth leads to the projection that the MPC will maintain the CBR at 7.5%. Karobia also discussed the challenge posed by stubborn inflation, leading banks to keep interest rates high. While this situation limits the maneuvering space for financial institutions, it aligns with the global trend of 'higher for longer' interest rates to address inflation concerns. Despite easing borrowing rates, which bodes well for the private sector, the maintained inflationary pressure supports the rationale for keeping the current monetary policy stance. The conversation then shifted to the performance of the Rwandan franc against the US dollar, reflecting a broader trend observed across East African currencies. The region has faced challenges with the strengthening USD, resulting in currency devaluation. Rwanda's current account deficit deteriorated by over 60% in the second quarter of 2023, indicating significant trade imbalances. The pressure from a stronger USD, coupled with trade disparities, continues to impact the Rwandan franc. However, a potential relief could stem from fuel prices, which have shown some moderation despite initial fears of surpassing $90 per barrel. With fuel prices stabilizing around the $80s and occasionally dropping to $70s, there is hope for mitigating currency pressures. Given the region's heavy dependence on oil imports, this development could provide some relief amidst currency challenges. Karobia's analysis sheds light on the complex interplay between economic factors and monetary policy decisions in Rwanda. As the Central Bank deliberates on maintaining the current stance to address inflation and support economic growth, market participants eagerly await the outcome of the upcoming MPC meeting.