The Monetary Policy Committee (MPC), which met on August 26, increased the Central Bank Rate from 8.25 percent, citing persistent inflationary pressures and risks to the outlook.

Inflation rose from 9.1 percent in the first quarter of 2026 to 13.2 percent in the second quarter before reaching 14.5 percent in July, according to the National Bank of Rwanda (NBR). The rate is significantly above the central bank's target range of 2 to 8 percent.

The latest increase follows rate hikes of 50 basis points in February and 100 basis points in May. Since November 2025, the central bank has raised the policy rate by a cumulative 175 basis points.

The NBR Governor Soraya Hakuziyaremye said the latest decision was intended to anchor inflation expectations, limit second-round effects and support the return of inflation to the target range in the second half of 2027.

"Inflation is currently elevated but expected to return to the target range in the second half of 2027," the central bank boss told journalists during a press conference on Thursday.

Inflation is projected to average 13.1 percent in 2026, slightly lower than the previous forecast of 13.9 percent, before declining to 7.9 percent in 2027.

The central bank, however, warned that inflation could remain under pressure from external and domestic factors.

It identified the onset of the El Niño climate pattern as a key risk, saying droughts and heavy rainfall could affect food supplies and prices for commodities such as rice, cooking oil and sugar.

Continued tensions in the Middle East could also keep global commodity and oil prices elevated, potentially pushing up fuel, transport and import costs.

The NBR said core inflation rose to 12.3 percent in the second quarter from 9.3 percent, driven mainly by higher prices for transport, housing and food. Fresh food inflation increased to 7.3 percent from 5.2 percent, while energy inflation more than doubled to 45.7 percent from 21.1 percent.

Meat prices also came under pressure after supplies were temporarily affected by an outbreak of Rift Valley Fever, although the disease has gradually been contained.

Despite the inflationary pressures, Rwanda's economy maintained strong momentum.

The economy grew by 10 percent year-on-year in the first quarter of 2026, while the Composite Index of Economic Activities increased by 10.9 percent year-on-year in the second quarter, indicating continued expansion despite heightened global uncertainty.

Merchandise exports also performed strongly, increasing by 51 percent in the second quarter, mainly due to higher mineral exports amid favorable international prices.

However, imports rose by 28 percent, driven by demand for essential food products, construction materials, medical equipment and information technology equipment. The trade deficit consequently widened by 13.8 percent to $821.9 million, from $722.3 million in the same period of 2025.

The Rwandan franc meanwhile remained relatively stable. It depreciated by 0.87 percent against the US dollar in the first half of 2026, compared with 2.96 percent during the same period in 2025.

International reserves stood at a level equivalent to 4.2 months of imports at the end of June, above the NBR's four-month benchmark.

The latest rate increase has already been reflected in money market conditions. The interbank rate rose to 7.73 percent in the second quarter, from 6.30 percent in the corresponding period of 2025.

However, retail lending and deposit rates remained broadly stable, suggesting that previous policy rate increases have yet to be fully transmitted to consumers and businesses.

The average lending rate stood at 15.88 percent in the second quarter, compared with 15.96 percent a year earlier, while deposit rates increased marginally to 9.79 percent from 9.75 percent.

The NBR said it would continue monitoring economic conditions and remains prepared to take further measures to safeguard price stability.

Separately, the central bank's Financial Stability Committee said Rwanda's financial sector remained stable and resilient despite global uncertainty.

The sector's total assets grew by 22.7 percent to Rwf17 trillion in the first half of 2026, while outstanding loans from credit institutions increased by 22.6 percent to Rwf6.9 trillion.

Banks accounted for 87 percent of outstanding credit, with lending increasing by 22 percent to Rwf6.1 trillion.

The NBR said banks continued to maintain strong capital and liquidity buffers, although the non-performing loan ratio increased to 3 percent in June 2026 from 2.6 percent a year earlier.

The central bank's latest decision continues a tightening cycle aimed at bringing inflation back within its target range while maintaining economic and financial stability.

"The National Bank of Rwanda remains committed to safeguarding financial stability. The FSC will continue to closely monitor credit growth, liquidity and funding conditions, emerging risks in non-bank financial institutions, investment concentration as well as fraud, cyber risks and other operational vulnerabilities," Governor Hakuziyaremye noted.