Central Bank reduces policy rate as inflation remains within target

By Wycliffe Nyamasege
On 29 May 2024 at 12:09

The National Bank of Rwanda (NBR) on Wednesday cut its monetary policy rate by 50 basis points to 7.0 per cent, citing a stabilizing inflation rate.

Addressing a press conference in Kigali, NBR Governor John Rwangombwa announced that Rwanda’s inflation rate had dropped to 4.7 per cent in the first quarter of 2024 from 8.9 per cent registered in the last quarter of 2023. He added that the bank expects inflation to remain within the target of 5 per cent in 2024 and 2025.

"We expected inflation to ease to around 5% this year, and in the first quarter, we registered an average of 4.7%. We expect this trend to continue for the rest of the year. At least, our average projection for this year is 5%, which is the same projection we have for 2025," the Central Bank boss told the media.

The governor noted that the economy had recorded good performance in the agriculture sector in the first quarter, adding that normal performance is expected in the second quarter. He noted that the prices of food are expected to remain normal during the period.

"We saw good performance in agriculture in the first quarter of this year. We expect normal performance for season B—not as strong as we registered in season A, but good enough to maintain food prices at affordable/normal rates," he added.

While acknowledging the positive progress, Governor Rwangombwa warned of several potential risks to the economic outlook. These include global geopolitical tensions, particularly in the Middle East, which could disrupt international commodity prices, as well as adverse weather conditions in Eastern and Southern Africa.

"Within the region, we have had challenges in the southern part of Africa, especially Zambia, which was a main supplier of maize to the region. It was hit by drought, and this might affect the process of food in general. But for now, our baseline shows that the inflation remains around 5%," Governor Rwangombwa stated.

He added, "With these projected economic fundamentals, the monetary policy committee decided to reduce the monetary policy rate by 50 basis points to 7% from 7.5%, which we had since the last quarter."

The decision to reduce the country’s monetary policy rate is expected to make borrowing more affordable compared to last year, encouraging increased spending and investments.

The headline inflation rate in Rwanda has declined steadily since January 2023 when the rate stood at 20.7 per cent. By the end of the first quarter of 2023, the inflation rate had dropped to 19.3 per cent.

In April 2023 the inflation rate dropped to 17.8 per cent and declined further to 14.1 in May. By the end of July 2023 the rate was at 11.9 per cent.

In August the rate increased slightly to 12.3 per cent and 13.9 per cent by the end of September. Since then the rate has been on a downward trend hitting 11.2 per cent in October, 9.2 per cent in November, 6.4 per cent in December, 5.4 per cent in January 2024, 4.9 per cent in February and 4.2 per cent in March.

NBR Governor John Rwangombwa announced that Rwanda's inflation rate had dropped to 4.7 per cent in the first quarter of 2024 from 8.9 per cent registered in the last quarter of 2023.