The National Bank of Rwanda (BNR) has reduced its benchmark lending rate, signaling confidence in the country’s economic stability. The new rate is set at 7.0 percent, a decrease of 50 basis points from the previous rate.
This decision to lower rates comes despite forecasts of stable inflation hovering around 5 percent over the coming months. Speaking to the media on Wednesday, May 29th, John Rwangombwa, Governor of the BNR, underscored the success of previous tightening cycles.
The governor highlighted that inflation, initially expected to fall to 5 percent, had actually dropped even further to 4.7 percent in the first quarter of 2024.
Overall inflation reached 5.7% in March 2024, down from 6.3% in February. This decline is primarily attributed to lower food and fuel prices.
Rwangombwa also pointed out that the market recorded a positive agricultural performance in Season A.
The MPC reported a widening trade deficit. While exports grew marginally by 0.2%, this was overshadowed by a significant 5.9% increase in imports. Weaker performance from traditional exports like coffee contributed to the sluggish export growth.
Meanwhile, strong demand for capital goods in public transportation projects and consumer goods fueled the import surge. This rising import bill put pressure on the Rwandan franc, leading to a 2.08% depreciation against the US dollar by March 2024.
Despite a positive near-term outlook, analysts warn of potential risks. A key concern is the agricultural sector, facing threats of a long-term drought similar to previous years . This could disrupt food supplies and potentially trigger inflationary pressures.
The trade deficit according to the MPC, widen as exports increased marginally by 0.2 percent due to a weak performance of traditional exports like coffee. Imports increased by 5.9 percent largely due to hight demand for capital goods in public transports, and consumer goods. This continued to exert pressure on Rwanda francs, where by by March 2024, it depreciated by 2.08 percent against the US Dollar.
Acknowledging the inherent uncertainty in economic forecasting, Rwangombwa emphasized the BNR’s preparedness to adjust its stance if necessary. “Should risks materialize and impact price stability, we will take appropriate actions to maintain inflation within our target range of 2 to 8 percent,” he declared.
The governor stressed the importance of a robust financial sector to weather potential risks. “We need to ensure commercial banks have strong capital bases and liquidity to manage any unforeseen challenges,” he remarked.
The BNR remains vigilant, acknowledging the lingering effects of past crises like COVID-19 and the war in Ukraine. “These are external shocks beyond our control,” admitted Rwangombwa, “but we can work to mitigate their impact on the Rwandan economy.”
The MPC will continue to closely monitor potential risks that could disrupt the projected inflation stability in the coming months.
