Rwanda’s central bank has maintained its lending rate to tackle soaring inflationary pressures and support economic recovery.
The central bank’s rate-setting Monetary Policy Committee (MPC) on Thursday decided to maintain the rate at 5, unchanged from the last quarter, to contain inflation and support economic recovery amid heightened risk including rising domestic and global inflation.
“The projected international commodity prices are expected to be the main drivers of high inflation. The committee noted that these inflationary pressures surrounded by global uncertainties may start to weigh on domestic and global demand negatively.
“The MPC…will continue to monitor the situation closely, standing ready to take further action, as necessary,” said National Bank of Rwanda Governor John Rwangombwa.
Despite a recent uptick in inflation which is expected to rise sharply to 8 percent, well above the initial projection of 5 percent in 2022, the Rwandan economy is on a steady rebound from a pandemic-induced recession.
The Composite Index of Economic Activities increased by 13.7 percent year on year in the first quarter of this year from 11.9 percent recorded in the first quarter of last year.
The National Bank of Rwanda attributes the strong rebound in the first quarter to the government's successful Covid-19 vaccination campaign and various government policies, including multimillion dollar economy recovery fund and NBR's accommodative monetary policy that supported the improvement of economic activities in the first quarter of 2022.
In recent months, the country has successfully reopened key sectors of the economy, including tourism and hospitality sectors.
The economy is expected to be largely boosted with the hosting of the Commonwealth Health of Government Meeting (CHOGM) from June 20-25, with up to 10,000 delegates expected in the country.
“These economic policies will continue to support economic growth in the second quarter of 2022,” Mr Rwangombwa said.
However, the central bank is cautiously optimistic as the current global environment remains fluid which is likely to undermine the country's growth prospects.
In particular, the recent hike in inflation, partly linked to the negative effect of the Russia-Ukraine war, is likely to constrain private consumption, according to the Central Bank.
“The shortage and higher costs of some imported inputs, as well as unfavourable weather conditions that affected Agriculture Season A, are expected to have a negative effect on this year's economic growth, which will remain strong but lower than [the] 7.2 percent initially projected,” Mr Rwangombwa said.
Rwanda’s economy is projected to expand by 7 percent in 2022, slightly below the anticipated 10.2 percent in 2021, according to the latest International Monetary Fund (IMF).