Rwanda Raises Key Interest Rate to Curb Inflation

Rwanda's central bank has announced its decision to raise its key interest rate from 5.0 percent to 6.0 percent to ease inflationary pressure.

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The Monetary Policy Committee (MPC) decided to increase the Central Bank Rate (CBR) by 100 basis points to reduce inflationary pressure and preserve the purchasing power of consumers. It said the country's headline inflation is projected to average around 12.1 percent in 2022.

"Inflation is expected to remain high over the next three quarters and start easing in the second half of 2023 when the headline inflation converges toward the 5 percent benchmark," the National Bank of Rwanda Governor John Rwangombwa said, blaming the high inflationary pressure mainly on global supply challenges and lower domestic agriculture output.

The main drivers of the high inflation projection include high prices of imported energy products, notably oil and gas, food, and subdued domestic food output in 2022 following unfavorable weather conditions and increased prices of imported inputs, Rwangombwa said.

Globally, the relaxation of COVID-19-related restrictions and economic recovery support measures led to excess demand for commodities which resulted in ever increasing prices for key commodities such as oil, gas, and food.

The conflict between Russia and Ukraine, two major producers and exporters of oil, gas, fertilizers, metals, cereals and sunflower-seed oils, exacerbated the trend, Rwangombwa said, adding that Rwanda's economy is expected to remain resilient in 2022, but growth is projected to slow to 6.0 percent, down from 2021's 10.9 percent.

The country's trade deficit as of the end of the third quarter this year widened by 20.6 percent year on year as the increase in export revenues was less than enough to offset the larger increase in import bill.

Rwanda's merchandise exports in the first three quarters of this year rose by 32.2 percent compared to the same period last year, mainly due to an increase in commodity prices while merchandise imports increased by 24.5 percent. The Central Bank said it stands ready to tighten the monetary policy further if inflationary pressure remains high.