Wednesday, October 1, 2014

Rwanda maintains rate on easing inflation pressures

    Rwanda's central bank left its benchmark repo rate steady at 6.00 percent to continue stimulating  economic activity while inflationary pressures have eased further due to the coordination of monetary and fiscal policies, limited inflationary pressure from trading partners, stable oil prices and a decline in domestic food prices.
    The National Bank of Rwanda (BNR), which cut its repo rate by 50 basis points in June, said the country's economy is expected to improve and reach the 6.0 percent projected growth for 2014.
    The BNR issued the following statement:

"The Financial Stability Committee (FSC) of the National Bank of Rwanda observed that the financial sector is stable and sound and pledged commitment to continually strengthen the supervisory functions, ensure the finalization of the main laws and risk based supervision for the payment systems.
The Monitory Policy Committee (MPC) on the other hand decided to maintain the current accommodative monetary policy stance so as to continue sustaining economic recovery. These decisions were based on the following observations;

1.      The FSC observed that:

1.1. The current Financial Soundness Indicators for banks, microfinance and insurers show that Rwanda’s financial sector remains sound and stable.

1.2. As at end June 2014: banks, microfinance and insurers registered strong capital/ solvency ratios as stood at 23.6% (above the 15% prudential requirement), 33.91% (above the 15% prudential requirement) and 243% (against the 100% prudential requirement) respectively.

1.3. In addition, better asset quality indicators for banks and microfinance sector were registered in the same period. Non performing loan ratio (NPL ratio) for banks improved from 6.9% by end December 2013 to 6.6% by end June 2014. For microfinance, the NPL ratio was 7.6% compared to 6.8% realized in December 2013.

1.4.Similarly, the three sectors (mentioned above) remain profitable. The banking sector’s Return on Assets (ROA) and Return on Equity (ROE) was 2.1% and 12.2% by end June 2014 compared to 1.5% and 7.4% recorded by end December 2013 respectively. For microfinance, the ROA and ROE stood at 3.9% and 11.9% and insurance sector recorded ROA and ROE of 6% and 8% respectively by end June 2014.

2.      FSC Resolved:
2.1.To continually strengthen the supervisory functions.
2.2. To strengthen risk based supervision for the payment systems.
3.      MPC noted that:

3.1.   The global economy has continued to recover, growing from 1.9% in 2014Q1 to 2.3% in 2014Q2 and is expected to grow by 2.8% in 2014Q3. According to IMF forecasts, global real GDP growth is projected to rise by 3.4% in 2014 from 3.2% in 2013. This performance is mainly driven by the improvement in the underlying economic fundamentals in advanced economies.

3.2.   Global inflation remains subdued, stabilizing at around 2.3% in 2014Q2 and 2014Q3 on the account of the decline in international commodity prices, especially fuel and food. In advanced economies, the low inflation is generally driven by low economic activity which remains below potential output while global inflation is projected at 2.4% in 2014Q4.

3.3.   After a slowdown in real GDP growth in 2013, Rwanda’s economy grew by 7.4% in   2014Q1 and is expected to further improve and reach the 6.0% growth rate projected for the year 2014. The economy is expected to perform well in 2014Q2 and 2014Q3 given that total turnovers increased by 15.8% in the first eight months of 2014 from 12.8% in the same period of 2013.

3.4.   The good economic performance has been supported by the improvement in economic financing. Between December 2013 and August 2014, money supply (M3) rose by 18.1% compared to 10.5% recorded in the same period of 2013. During the same period, credit to the private sector increased by 11.7% against 7.6% recorded in the same period of 2013 whereas new authorized loans grew by 45.1% in the first eight months of 2014 from -13.2% in the same period of 2013.

3.5.   Inflationary pressures have continued to ease as a result of sustained and well-coordinated monetary and fiscal policies, limited inflationary pressures from trading partners, stability of international oil prices and the decline in domestic food prices. Inflation decelerated to 0.9% in August 2014 from 3.7% in December 2013 and it is expected to be around 3.2% in December 2014. However, there are some risks to the inflation outlook, namely: less than expected season B 2014 harvests, the end-of-year festivities and the rise of inflation in some EAC countries.

3.6.   Regarding the external sector, in the first eight months of 2014, total exports slightly increased by 0.8% in value and 12.4% in volume, while imports increased by 11.1% in value and 1.3% in volume. As a result, the trade deficit for the same period widened by 14.9% and import coverage dropped to 24.7% in 2014 from 27.2% in 2013.

3.7.   In line with the current accommodative monetary policy stance, money market interest rates have been declining due to comfortable liquidity conditions while lending and deposit rates remained stable. Treasury bills rate declined to 5.2% in August from 5.6% in June 2014. The repo rate slightly increased to 4.4% from 3.7% in June while lending and deposit rates remained stable between 17.2% and 17.5% and 8.4% and 8.8% respectively.

In view of the above key developments, economic outlook and financial fundamentals both at national and international level, the MPC decided to keep the key repo rate unchanged at 6.5% for the fourth quarter 2014."


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