Rwanda’s central bank has raised its benchmark lending rate to address soaring inflation and minimise price shocks to households.
The central bank rate has been set at five percent from 4.5 percent, the first increase since April 2020.
The National Bank of Rwanda’s rate-setting Monetary Policy Committee said the decision is meant to tackle inflationary pressures amid rising domestic and global demand and increasing commodity prices as economies recover from the Covid-19 impact.
In January, inflation rose to 4.3 percent from 1.9 percent in December, threatening to go above the central bank’s target of five percent for 2022.
“To ensure that inflation is contained at an adequate level while continuing to support economic recovery, the MPC decided to increase the central bank rate (CBR) by 50 basis points to 5.0 percent,” said central bank governor John Rwangombwa.
He said the monetary policy stance would be adequate to continue supporting the economy while containing inflation in the medium term and minimising the negative effect on purchasing power.
Data from the National Institute of Statistics shows consumer prices have increased 1.3 percent year-on-year in January, rebounding after six consecutive months of declines, largely pushed by higher prices for transport, housing and utilities.
Despite the government’s measures to contain price increases by subsidising public transport and fuel prices, the central bank warns that supply constraints this year are likely to persist for some food imports such as edible oils.
Further, the expected slowdown in domestic food production in February to June growing season is expected to see an uptick in food inflation.
Analysts say the central banks are taking similar monetary stances to contain rising inflation pressures globally and domestic.
Andrew Mold, chief, regional integration and AfCFTA Cluster, United Nations Economic Commission for Africa, noted that in the last 12 months, there has been significant inflationary pressures across the world, particularly in Europe and the US, and now in parts of the African continent.
Part of the problem, he said, has been significant supply-side disruption due to the Covid crisis, though the inflationary consequences of lax monetary policy are beginning to be seen.
“Thus far, expansionary central bank policies have principally manifested themselves in rising asset, not consumer prices. But that has clearly begun to change. As a consequence, central banks across the world are reviewing their base rates and considering increasing them. The Rwandan move this week has to be seen against the backdrop of this wider context,” he told The EastAfrican.
Central Banks in the region are also expected to tighten monetary policy to curb rising global inflationary pressures and an uptick in domestic demand as economies fully reopen.
In East Africa, Kenya and Uganda have left their benchmark interest rates unchanged at 7 percent and 6.5 percent, respectively.