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The central bank of Rwanda has taken a decisive step in addressing prevailing inflationary pressures and other economic challenges by raising its lending rate by 50 percentage points to 7.5%.
The announcement came from Central Bank Governor John Rwangombwa during the unveiling of the quarterly Monetary Policy Committee and Financial Stability Statement on Thursday, August 17. This statement encompassed an assessment of recent global and national economic trends along with proposed interventions.
Termed as the key repo rate, this lending rate dictates the interest at which the central bank extends loans to commercial banks. Its adjustment, whether upward or downward, acts as a lever to regulate liquidity within the banking system, thereby aiming to stabilize the overall economy.
Governor Rwangombwa highlighted that this increase in the central bank rate is aimed at sustaining the ongoing decline in inflation rates. He expressed the intention for inflation to ultimately fall within the projected band (below 8%) by the close of 2023 and approximately 5% by 2024. However, he also cautioned about potential vulnerabilities, particularly the unprecedented impact of climate shocks.
He stated, “The current forecast faces some uncertainty, such as the geopolitical tensions that could influence international commodity prices, as well as unpredictable events linked to climate change that continuously affect our agriculture sector performance.”
On a related note, Rwangombwa acknowledged that the external sector’s dynamics have remained relatively stable, albeit with a notable surge in the import bill. This disparity has consequently placed pressure on the exchange markets.
“Our imports have grown much bigger than the export earnings, and it is coming from a bigger base. As a result, the deficit has widened, and that has put pressures on the exchange market,” he explained.
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