Rwanda's central bank retains key lending rate

The headquarters of National Bank of Rwanda (BNR), the central bank, in Kigali. PHOTO | FILE 

By BERNA NAMATA

In Summary

• The action contrasts her EAC counterparts, in particular Kenya and Uganda, who have recently raised their base lending rate in a bid to tighten liquidity in the market to contain inflation.

Rwanda’s central bank has retained its key repo rate — the rate at which it lends to commercial banks — at 6.5 per cent for the third quarter of this year to further stimulate lending to economy and support economic growth.

It last cut the repo rate by 50 basis points to 6.5 per cent in June last year.

This is in contrast to its East African Community (EAC) counterparts, in particular Kenya and Uganda, who have recently raised their base lending rate in a bid to tighten liquidity in the market to contain inflation.

READ: EA central banks target rates to check falling currencies, inflation

While Rwanda’s inflation has been maintained at below 5 per cent, the National Bank of Rwanda (BNR) sees inflation rising due to risks associated depreciating currency. The Rwandan franc has depreciated against the dollar, the country’s major trading foreign currency, by 3.3 per cent.

“The Monetary Policy Committee has decided to retain…to continue supporting financing of the economy by the banking sector but also we didn’t have to reduce it further because we see some inflationary pressures,” said BNR Governor John Rwangombwa on Tuesday.

In May, Rwanda’s Consumer Price Index (CPI), which is the main gauge of inflation, increased by 2.2 per cent year on year, higher than 0.9 per cent recorded in April 2015 due to rising food prices.

The “imported products” inflation also slightly picked up with a 0.6 per cent increase on both annual and monthly basis. However, inflation is not expected to go above 3.5 per cent by end of the year.

Despite the low level of inflation, the regulator sees risk of inflation arising from developments in the international commodity market and among other external factors which could negatively affect exports and further worsen the country’s trade deficit.

In the first five months of 2015, the country’s trade deficit went up 6 per cent to $679.22 million compared to a similar period last year as a result of decline in formal imports by 5.1 per cent.

The Rwandan economy grew 7.6 per cent in the first quarter of this year, up from 6.5 per cent registered in the fourth quarter of 2014.

BNR said that it expects this good performance to continue supported by a general pickup in economic activity. Real GDP is projected at 6.5 per cent for 2015.